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Less Volume, Less Margin

05 August 2019 by jbchevrel

Whiting Petroleum Corporation (WLL) saw its 5y spread virtually double, i.e. widen by c290bp since July 31 (European) close. This came after a very poor Q2 set of results and a revised guidance. They printed an adjusted loss per share of -28c vs an expectation of +62c EPS, although the range of expectation tracked by Bloomberg was rather wide (starting at +12c). But none of the predictors expected a loss. Realized price per unit of both oil and gas were down in a double-digit fashion, compared to Q2-18. The stock has lost c43% since July 31 (European) close. In Q2 production was affected by issues related to infrastructure constraints, which are expected to remain until the end of the year. Not only the output but the price at which the company sold gas has also been affected by these, on top of a systemic oversupply environment. WLL therefore had to also reduce its full-year output guidance. Which makes market participants wary that it is not going to generate much cash flow before next year. Last month, WLL agreed to sell some properties for $53m, that may weigh and also reduce full-year output. Against this challenging backdrop, another alarming sign for markets is that WLL is implementing an organizational restructuring that will reduce its workforce by c33% (i.e. 254 staff incl. 94 executives) to save $50m on an annual basis, after this plan will have incurred a (one-off) $8m charge. On top of WLL total output being less than expected, its oil production more specifically also declined in the mix. It seems that WLL’s oil percentage will be around 65-65.5% for the year, due to delays in new wells which happen to have higher oil %.