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Whiting Petroleum’s IPAA OGIS 2016 Presentation: Key Takeaways

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Whiting Petroleum

On April 12, 2016, Whiting Petroleum (WLL) presented at the IPAA (Independent Petroleum Association of America) OGIS (Oil and Gas Investment Symposium) in New York. In this part of the series, we’ll look at some key takeaways from the company’s presentation.

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WLL’s cost reduction focus

In order to successfully navigate through the lower-for-longer crude oil and natural gas price environment, Whiting Petroleum is diligently focusing on production-related cost reductions.

In 2015, WLL’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin decreased ~21%. That was in spite of a ~50% reduction in yearly revenues. The company achieved this by accomplishing the following:

  • 20% year-over-year reduction in DD&A (depreciation, depletion, and amortization) costs
  • 22% year-over-year reduction in LOE (lease operating expenses)
  • 32% year-over-year reduction in G&A (general and administrative) expenses

For 1Q16, Whiting Petroleum expects to continue its cost reduction focus. It’s expecting LOE of $8.25–$8.75. That’s a mid-point reduction of ~9% over 2015 LOE of $9.32 per barrel.

WLL’s capex reduction plans

In order to strengthen its balance sheet, Whiting Petroleum plans to spend within its OCF (operating cash flow). For 2016, the company expects capex (capital expenditures) of ~$500 million, a decrease of ~80% from its 2015 capex. It plans to spend almost $440 million on development activity in its core Bakken and Niobrara areas.

For 2016, Wall Street analysts estimate WLL’s OCF to be lower by ~47% year-over-year, at ~$562 million. This means that if Whiting Petroleum executes its capex reduction plans, it will be free-cash-flow-positive in 2016. Due to the steep downward trend in energy prices, most S&P 500 (SPY) energy companies have reported negative free cash flow (FCF). Below are the 4Q15 FCFs for some of WLL’s peers:

  • Murphy Oil (MUR): -$498 million, or -$2.90 per share
  • Apache (APA): -$705 million, or -$1.87 per share
  • ConocoPhillips (COP): -$541 million, or -$0.44 per share
  • Occidental Petroleum (OXY): -$224 million, or -$0.30 per share

WLL’s production reduction plans

Based on its reduced 2016 capex, Whiting Petroleum forecasts 2016 production of 128,000–138,000 boe (barrel of oil equivalent) per day. That’s ~19% lower than its 2015 production of 163,300 boe per day. Given the lower production and the possibility of lower crude oil (USO) (UWTI) (DWTI) and natural gas (UNG) (BOIL) (UGAZ) prices, Wall Street analysts expect WLL’s 2016 adjusted EBITDA to decline ~27%, to ~$828 million.

To learn more about WLL, read our detailed 1Q16 pre-earnings analysis.

Next, we’ll look at Pioneer Natural Resources, a nearly debt-free company with excellent hedges in place for 2016.

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