Whiting Petroleum Downgraded At Goldman In Favor Of WPX Energy

Whiting Petroleum Corp WLL shares have declined 47 percent since September 2015, as compared to the only 4 percent decline in the XOP.

Goldman Sachs’ John Nelson downgraded the rating on the company from Buy to Neutral, while lowering the price target from $13.75 to $12.75.

Risk-Reward

Nelson mentioned that WPX Energy Inc WPX had a superior risk-reward profile among Goldman Sachs’ higher oil beta coverage.

“We continue to view WLL’s announced agreements to reduce debt as a net long-term positive, but anticipate digestion of significant dilution could keep downward pressure on the stock in the near term,” the analyst stated.

Contrary to the earlier estimates, Whiting Petroleum has guided to weaker than anticipated capital efficiency, leading to higher than expected cash burn.

Reducing Leverage

The company has also failed to execute on the sale of its non-core assets to reduce leverage. Instead, the company has equitized debt to reduce leverage, leading to meaningful dilution.

“On 6/22 WLL announced it entered into privately negotiated agreements with bond holders which will reduce YE18E leverage by 0.9x but be up to 23-30 percent dilutive to our 2018 CFPS forecasts,” Nelson noted.

The analyst said that assuming full conversion, the YE18 net debt to EBITDA was expected to decline from 3.4x to 2.5x, which would take care of a sub-3x hurdle, which several investors had said they were comfortable with.