With the exploration and production successes Whiting Petroleum continues to display in the Bakken oil patch, investors ought to be snatching up company stock. But that’s not been the case.
Whiting stock has been on a rollercoaster ride during the past year, ranging from a low of $35.68 per share to as high as $58.33 per share, a huge $22.65 spread.
Moreover, from April 1 through April 24, a day before releasing its 2013 first-quarter earnings report, Whiting shares dropped nearly 10 percent to $45.75. They fell another 2.5 percent to $44.60 at market close just two days after announcing.
That seemed odd in light of Whiting’s stellar performance both on paper and in the field, especially during this year’s first quarter, coupled with the company’s strong expectations for the remainder of 2013.
Whiting sets record production
Whiting had record production during the 2013 first quarter, averaging 89,135 barrels of oil equivalent per day, a 10 percent increase over the first quarter 2012 production of 80,747 boe per day, and a 4 percent increase over the fourth quarter 2012 average of 86,055 boe per day.
“And we’re on track to post a year-over-year production gain of between 12 percent and 16 percent,” James Volker, Whiting’s chairman and chief executive officer, said in April 25 conference call with industry analysts.
Seventy-four percent of Whiting’s total production comes from the company’s core Rocky Mountain region, with more than 60 percent of the total coming directly from the Bakken and Three Forks plays in the Williston Basin.
On higher production, mainly from the Williston Basin, Whiting’s revenues climbed 9 percent to $613.4 million during the first quarter, compared to $563 million for the quarter a year earlier. Discretionary cash for the quarter totaled a record $401.1 million, a 14 percent increase over the first quarter of 2012 and a 5 percent increase over the fourth quarter of 2012.
Whiting also maintains a strong balance sheet with regard to total long-term debt of $2.1 billion, a comfortable 37 percent debt-to-capitalization ratio.
But that’s where the good news ends, at least for the time being. That’s because adjusted net income or profit available to common shareholders during the 2013 first quarter dropped 9 percent to $111.6 million versus $122.6 million for last year’s first quarter. That means earnings per share came in at 94 cents, well below last year’s first quarter earnings of $1.03 per share, even though stock performance for the first quarter beat consensus estimates by 4 cents a share.
Choppy and inconsistent
This is not the first time Whiting has had problems with profits and earnings per share, which may help explain why the company’s stock price has been choppy and inconsistent.
For example, in the fourth quarter ending Dec. 31, adjusted earnings per share decreased 20.95 percent to 83 cents compared to $1.05 for the fourth quarter of 2011. And again, earnings per share declined as revenues increased by a substantial 15.73 percent to $577.1 million from the year-earlier quarter.
“I have lost my patience,” Seeking Alpha contributing writer Michael Fitzsimmons wrote. “The company continues to find ways to impressively increase production while reducing net income per share.”
While first-quarter 2013 revenue increased by $49.7 million over the first quarter of 2012, costs and expenses rose by $69.3 million, Fitzsimmons noted. He added that depreciation, depletion, and amortization expenses were up $45 million and the employee participation plan liability was up a “whopping” 400 percent to $4.4 million.
Net income lags production
“The returns for WLL (Whiting), whether measured by share price appreciation or net income, are just not materializing in line with its production growth,” Fitzsimmons concluded.
Interestingly, Bret Jansen, also a Seeking Alpha contributor, as well as a daily columnist for Real Money at TheStreet.com, praised Whiting for its 2013 first-quarter performance. Whiting’s share price is currently undervalued, he concluded, noting that 32 analysts that cover the company have a $60 median price target on the stock, or 34.5 percent above the $44.60 share price at market close on April 26.
“The company provided plenty to make its shareholders happy,” he wrote. “The fast-growing producer looks poised to move significantly higher over the coming months …”
No matter where investors and financial writers stand on Whiting, there’s no denying that the company, a major operator in the Williston Basin, knows how to find oil and recover it in great quantities.
Fields ‘underpin’ growth
Drilling at the company’s Sanish, Pronghorn, Hidden Bench and Tarpon fields in the Williston Basin continues to “underpin” the company’s healthy production increases, Volker pointed out.
“Recent well results at our Missouri Breaks prospect indicate that this area should also contribute significantly to future production growth,” he added.
First-quarter net production from Whiting’s legacy Sanish field alone contributed an average 33,300 boe per day, a hefty 16 percent jump from the 28,790 boe per day average recorded in last year’s first quarter. Sanish output now represents 37 percent of Whiting’s entire production.
Strong initial production
Highlighting recent results at Sanish was the completion of the Roggenbuck 21-25H, which was completed in the Middle Bakken flowing at an impressive 2,053 boe per day on April 3, the company said. The well was drilled on the western edge of the field, and its 8,463-foot lateral was fractured stimulated in 26 stages.
Whiting is anxiously awaiting the outcome of its first Middle Bakken pilot well at Sanish, which it plans to be spud in May.
“If successful, this could add nearly 200 additional net drilling locations to our Sanish inventory,” Volker said. “And as you know, Sanish is the sweet spot of the basin.”
High-density pilots planned
The company also is preparing to launch Middle Bakken high-density pilots at its Pronghorn and Hidden Bench fields this June.
“If successful this would add over 116 net locations at Pronghorn and over an additional 160 net locations at Hidden Bench,” Volker said.
Production from the Southern Williston Basin, which includes the Pronghorn and Lewis & Clark prospects, averaged 13,800 boe per day in the first quarter, a whopping 52 percent increase over the 9,055 boe per day rate in last year’s first quarter. The area encompasses a total of 396,482 gross (262,194 net) acres.
Production from the Western Williston Basin, which includes Hidden Bench, Tarpon, Missouri Breaks and Cassandra, averaged 6,520 boe per day in the first quarter, representing a 27 percent increase over the 5,120 boe per day average rate in the fourth quarter of 2012. The area encompasses a total of 182,913 gross (114,454 net) acres.
Best output rate
Of note at Missouri Breaks during the first quarter was the Miller 34-8-1H in the Middle Bakken formation flowing at 1,475 boe per day, “our best rate to date in the field,” the company said. Whiting holds 95,803 gross (65,481 net) acres in the prospect, located in Richland County, Mont., and McKenzie County, N.D.
Whiting also scored two vertical well successes in the Red River “D” zone at its huge Big Island prospect, located on 176,900 gross (125,530 net) acres in Golden Valley County, N.D., and Wibaux County, Mont. The Stecker 32-9 was completed flowing 308 boe per day on Feb. 18, while the Davidson 13-19 flowed 226 boe per day on March 6. “We are now 11 out of 12 in this highly profitable play,” the company said.
The company also is planning to test the Red River “D” zone at Big Island later this year with the play’s first horizontal well. If successful, Volker has said it could be a “major game-changer.”
Whiting also reported strong drilling results from emerging plays outside the Williston Basin.
Shifting fracks at Redtail
Whiting and offset operators at the Redtail prospect near Denver, Colo., have been shifting “to larger fracks with encouraging results,” Volker told analysts.
For example, he said the Razor 26-3524H, which was fracture stimulated in 32 stages on a 6,364-foot lateral, flowed 861 boe per day in the Niobrara “B” zone on April 8, and then averaged 600 boe per day over the following two weeks. The company used “plug and perf” completion techniques and pumped over 5 million pounds of proppant into the well.
“Longer laterals and larger frack jobs have enhanced well performance,” Volker said, noting that earlier Niobrara “B” wells had initial production rates of around 500 boe per day, with most of them developed with 4,500-foot laterals utilizing sliding sleeve frack jobs in the 2.5 million pound proppant range.
However, in the development mode, the company can drill and complete the newly designed well for under $6 million, “as reductions in drilling times have been offsetting increases in frack volumes.”
Whiting now believes the Niobrara “B” zone alone holds up to 35 million barrels of oil in place per 640-acre section at Redtail. The company’s development plan for Redtail calls for eight wells per spacing unit into the Niobrara “B” and four wells in each spacing unit into the Niobrara “A” zone.
In total, Whiting estimates more than 2,400 gross locations or over 1,200 net locations at Redtail. It plans to add a second rig that is pad capable around mid-year and a third rig before year-end 2013. Redtail encompasses 120,354 gross (87,610 net) acres in the Denver Julesberg Basin in Weld County.
Wells scheduled at Big Tex
Whiting also highlighted its May 2502H well at its Big Tex prospect in Pecos County, Texas. It initially flowed on Jan. 23 at 674 barrels of oil per day from the Upper Wolfcamp formation. The well’s peak 30-day average was 397 barrels per day. And it is currently producing more than 200 barrels per day.
“Based on the performance of this well, Whiting has elected to move a drilling rig to Big Tex in May,” the company said, adding that it plans to drill at least three horizontal Upper Wolfcamp wells in 2013.
