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  • Writer's pictureIshfaaq Peerally

Whiting Petroleum - Out of Bankruptcy

Whiting Petroleum finally came out of bankruptcy and as I’ve been saying since April, at the right price, it might be a good investment.

Let’s see the new changes that happened to the company and stock.

  • New CEO and CFO

  • New Board Members

  • Most of the debts have been converted into equity

  • The old shares are being retired and new shares to be issued under the same ticker symbol

Here’s a summary of the new share structuring:

  • Current Shares Outstanding: 91 million, all for shareholders

  • New Shares Outstanding: 38 million

  • New Shares for bondholders: 36.8 million

  • New Shares for shareholders: 1.14 million

  • Future potential new shares: around 10 million (warrants and others)

In some way, we can say that Whiting Petroleum is undergoing a 1:80 reverse split then diluting its shares by 3200%.

The real catalyst that will determine the success of failure of Whiting Petroleum in the future will be oil prices as we can see a clear correlation between the two. If oil prices go higher, the revenues and cash flow of the company will be higher.

It also means that the assets (mostly PP&E) and consequently book value of the company will be higher. That’s why I believe that using Price to Book Ratio as exit multiple for the future valuations of the company is a good idea.

We had to look at three different cases, the bear, base and bull cases, all mostly dependent on oil prices.

In the bear case, oil prices remain low, the company's assets are depleted at about 7% a year and the company even increases its debt to end up with a lower book value that it has today.

In the base case, oil prices return to 2019 levels. The company's assets are still depleted at 7% and things return to what it would have been if the pandemic didn't happen.

In the bull case, oil prices go beyond $60/barrel, the assets are still being depleted at 7% but since oil prices are higher, the book value of the company will still be increasing and investors would be willing to pay even X3 of book value.

At current prices of $0.57 a share ($45.60 in new shares), it seems that Whiting Petroleum could be a good investment if oil prices really go higher in the future. Whiting Petroleum, however, remains a very risky stock.

I had an order set at $0.60 a share a few months ago and it was executed last night. For the time being, I’m going to keep it.

Here's the full analysis and research of Whiting Petroleum:

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