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Digging Deeper into Whiting Petroleum’s Key Fundamentals

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Digging Deeper into Whiting Petroleum’s Key Fundamentals PART 1 OF 8

What Are the Trends in Whiting Petroleum’s Net Debt?

Whiting Petroleum’s net debt-to-EBITDA

In a previous series, we discussed Whiting Petroleum’s (WLL) goals, key objectives and strategies, and operational performance this year. In this series, we’ll look at Whiting Petroleum’s key fundamentals.

Whiting Petroleum’s (WLL) net debt-to-adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose steadily in 2Q15 and 2Q16. After peaking in 2Q16, the EBITDA multiple started falling.

What Are the Trends in Whiting Petroleum’s Net Debt?

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As the above chart shows, Whiting Petroleum’s net debt was mostly steady at ~$5 billion in 2Q15 and 2Q16. In 2Q15, Whiting Petroleum reported a net debt of ~$5.2 billion, while its net debt was $4.9 billion in 2Q16. Its trailing 12-month adjusted EBITDA fell steadily during this period. It fell from $1.5 billion in 2Q15 to $705 million in 2Q16—a fall of more than 50%. As a result of the steady debt levels and falling EBITDA, Whiting Petroleum’s net debt-to-adjusted EBITDA ratio rose consistently in 2Q15 and 2Q16. Its net debt-to-adjusted EBITDA rose to 7.0x in 2Q16 from 3.4x in 2Q15.

Since 2Q16, Whiting Petroleum’s net debt levels have fallen, as you can see in the above chart. Its net debt levels fell to $3.2 billion in 2Q17. The trailing 12-month adjusted EBITDA mainly remained the same. The trailing 12-month adjusted EBITDA as of 2Q17 was $804.7 million. As a result, there was a falling trend in Whiting Petroleum’s net debt-to-adjusted EBITDA ratio between 2Q16 and 2Q17. The ratio fell to 4.0x in 2Q17.

While Whiting Petroleum has managed to reduce its debt levels, it’s debt remains high compared to its market capitalization of $2.1 billion. We’ll discuss Whiting Petroleum’s debt situation in the next part.

Is Whiting Petroleum under pressure?

Whiting Petroleum felt pressure due to its existing debt. In August, Whiting Petroleum sold its Fort Berthold assets in North Dakota in exchange for $500 million in cash. The money was used to pay down most of its $550 million bank debt.

Recently, Whiting Petroleum announced that it plans to undertake a reverse stock split of its common stock at any ratio ranging from one-for-two and one-for-six, which will be decided by its board when it meets in 4Q17. Whiting Petroleum expects an increased per share trading price, “which may improve marketability and facilitate its trading.”

Reverse stock splits won’t impact shareholders’ equity interests or voting rights. The tactic serves to reduce the number of shares outstanding while increasing share prices proportionately.

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