Whiting Petroleum's Lower Oil Production Guidance Triggers Analyst Downgrade

Whiting Petroleum Corp WLL reported its second-quarter cash flow per share that was significantly short of expectations.

Although the company reiterated its full-year capex outlook, the oil production guidance was lowered by 5.5%, fueling concerns around its oil growth going forward, according to KeyBanc Capital Markets.

The Analyst

Leo Mariani downgraded Whiting Petroleum from Overweight to Sector Weight.

The Thesis

Whiting Petroleum’s stock trades below that of peers mainly on concerns over the company’s financial leverage and inventory length, Mariani said in a Thursday downgrade note. (See his track record here.) 

Although the company’s leverage is above that of peers, it has $1.7 billion in remaining revolver capacity and could generate around $145 million in free cash flow in 2020, which would help pay down debt, the analyst said. 

Whiting Petroleum reported second-quarter cash flow per share at $2.46, 9% below consensus. The shortfall was on account of lower oil production, higher cash costs and weaker pricing, Mariani said. The lower oil production in the quarter was partly due to midstream constraints, he said. 

Whiting reiterated its 2019 capex guidance, but reduced its production outlook by 3.2% to 123,300-127,400 boepd, mainly reflecting the lower second-quarter production.

Oil production in the back half of the year is now 9% below consensus expectations.

Whiting announced an organizational restructuring that aims to reduce its workforce by 33%, the analyst said; the company expects $50 million in annual G&A savings from this initiative.

Price Action

Shares of Whiting Petroleum were down 38.69% at $10.84 at the close Thursday.

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