Whiting Petroleum Corp (NYSE:WLL) filed for Chapter 11 bankruptcy on April 1, 2020. The company cited the 2020 Russia-Saudi oil price war and COVID-19 pandemic as the reasons, and it underwent a restructuring that left previous shareholders at a loss. The deal converted shares in the beleaguered company at a 75 to 1 ratio, meaning you received one share for every 75 you held.
It’s a far cry from the company’s 2015 high of over $370 per share, but the September 1 deal brought the trading price from below $1 to the $20 price range. This is a reasonable price for the stock, considering the company’s debt and assets, but will Whiting Petroleum stock recover?
WLL Stock Has Serious Fossil Fuels Exposure
Hydrocarbons are naturally occurring organic compounds, including methane, ethane, propane, and butane. Gasoline, natural gas, and other fuels, along with coal, are also hydrocarbons.
These are the cornerstone of many modern technologies, and they’re also often referred to as “fossil fuels,” due to many of them being created by the natural anaerobic decomposition of fossils.
Large deposits exist in the ground (both on land and under the ocean) and Whiting Petroleum is a company dedicated to finding and exploiting them.
The company was founded in Denver, Colorado in 1980 and focuses primarily on the Rocky Mountain region. It typically locates and acquires rights to deposits, then it develops the site and sells the resources while scouting more.
This drove the company to go public via a 2003 initial public offering (IPO) that raised over $400 million with an opening price of $32.60 per share. Assets bought and sold by Whiting Petroleum are typically nine-figure deals that drive a lot of revenue.
Revenue streams are limited to these fossil fuels though, which led to the company facing problems we’ll discuss below in the Risks section.
Will Whiting Petroleum Stock Recover?
Heading into its bankruptcy, Whiting Petroleum was already losing money. This drove it deep into debt that required it to give 97 percent of existing equity to creditors while existing shareholders divided the remaining 3 percent.
Emerging from bankruptcy wiped approximately $2.3 billion of its $3.6 billion debt, and the remaining amount will be covered as the economy and oil industry recover.
Creditors and the market seem satisfied with the current pricing of Whiting, and it is set up to continue operating under new management. Employees will get paid, and it can continue searching for new deposits.
Now that the company is moving forward, its $20 price range isn’t that far from where it was priced for most of the five-year period between 2015 and 2020. There’s still plenty of room to grow, and new stockholders are hoping the company will return to its former shine.
Unfortunately, this is out of the company’s hands, as the entire hydrocarbon industry is under attack from more than just the issues toughed on in the introduction.
Risks of Buying Whiting Petroleum Stock
The hydrocarbon industry is facing some major obstacles. For example, the industrial usage of petroleum products accounts for 14 percent of all greenhouse gases.
This leads climate change advocates to promote sustainable and renewable alternatives, like wind, solar, and geothermal sources.
In the automotive sector, there’s also the shift to electric vehicles, which experienced growth every year in the past five years but 2020, according to McKinsey’s Electric Vehicle Index.
In 2014, these problems hit the entire oil industry, dropping prices from over $100-125 per barrel all the way down to $30 per barrel in 2016. A glut of product from shale fracking technology also contributed to production from OPEC nations like the U.S. to increase as demand slowed.
Then in 2020, two issues hit at once – first was Russia and Saudi Arabia engaging in a price war that sent oil prices tumbling 30 percent early in the year. The Dow Jones Industrial Average (DJIA) fell over 1,300 points due to both this price war and the coronavirus.
By April, oil prices in the U.S. were negative for the first time in history. This ended up being the death blow for Whiting Petroleum in its original form, and life isn’t any easier for the new one.
The industry is still struggling to recover from the pandemic and turbulent economy, and that leaves a smaller pie for Whiting to fight its competition for.
Whiting Petroleum Has Firm Competition
The energy sector has no shortage of competitors, and companies like Carrier Energy Partners, EP Energy, and Woodside Petroleum are all part of the same industry.
This makes them direct competitors to finding hydrocarbon deposits, although they all typically operate within their own territories. And the oil market has changed since COVID-19.
The push to remote work and school leaves many people driving much less often. And the geopolitical climate in the aftermath of the quarantine means each OPEC nation is reevaluating its imports and exports. All of these adds up to firm competition for Whiting Petroleum on every end. They’ll need to expand into other revenue streams if the industry doesn’t recover.
Summary: Will Whiting Petroleum Stock Recover?
Whiting Petroleum spent from April to September undergoing a reconstruction during Chapter 11 bankruptcy. It emerged with shareholders receiving a 75:1 trade on the new stock and approximately two thirds of its debt wiped out. This gives it a fresh start with shareholders moving forward, but things aren’t going to be easy.
The oil industry reached historic lows in 2020, based on global trade tensions and the coronavirus pandemic. This occurred at a time when the company was already reeling from losses incurred from 2014-2016. And there’s no guarantee the oil industry will bounce back.
It’s a good idea to wait and see how the greater industry and economy recovers before investing in this fossil.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.