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  • Writer's pictureIshfaaq Peerally

Whiting Petroleum - Buying or Waiting?

Whiting Petroleum $WLL was the first of the US oil companies to file for bankruptcy this year after failing to repay some of their contractual obligations. Investing in bankrupt companies may seem risky but if you invest in the right company, you can make a fortune. For example, a $10 000 investment in American Airlines in 2012 when the company filed for bankruptcy would have yielded $1.6 million. Most bankrupt companies are bad investment but Whiting Petroleum seems to be a good one. We need to calculate the liquidation value to see that.

The company already negotiated their debt restructuring with their creditors and hopes to come out of bankruptcy in 5 months. 97% of the equity of the company will be given to the creditors and current shareholders will own only 3% of the company. - In 2019, the total debt was $2.8 billion - In March 2020, they took an additional line of credit of $650 million, which means that the total debt was $3.45 billion - In April 2020, they filed for bankruptcy and restructured the debt converting $2.2 billion into equity. The total debt left would be $600 million

The tangible assets of the the company are currently $4.6 billion, which means that the tangible book value after restructuring would be about $4 billion. This is the liquidation value of the company. Right now, there are about 91 million shares outstanding. After the restructuring, they will have a total of 3 059 million shares. The liquidation price will be $1.30/share. There are multiple catalysts that can send the liquidation price higher, for example, higher oil prices. If oil prices go higher, the assets will increase, and this company will be one of the rare ones without debts. So, we should expect productions to go well, and stock prices to consequently increase. The question that we should ask ourselves right now is whether it is a good investment currently since the price is below that $1.30. It can be but the risk is big on such a company. They already got a notice from the NYSE that they may be delisted if the price stays below $1 for a long time. If they are going to have a reverse split, this could cause the stock price to fall. We need a big enough margin of safety. I believe that 50% is reasonable. We will therefore, need to wait for the stock price to fall back to about $0.70. I already set an order at that price.

Whiting Petroleum is a risky investment but the reward can be very big, especially if oil prices increase. I would not recommend anyone putting too much of their portfolio in it. But for those of you who want to invest in a deep value bankrupt stock, which comes from the playbook of Benjamin Graham, Whiting Petroleum is an interesting stock to follow. You can access the full analysis of Whiting Petroleum on my research parnership:

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