Whiting bonds continue to erode on lower production outlook, workforce layoffs

Whiting Petroleum’s bonds and stock sank today after the company cut production guidance for the rest of the year and said it reduced its workforce by 33%, according to four sources following the company. The lowered guidance is a result of infrastructure and pipeline constraints, including transportation, processing and compression in the Bakken, according to three of the sources.

The oil and gas producer’s USD 1bn 6.625% senior unsecured notes due 2026 most recently traded at 86.5 to yield 9.47%, from trades in the 93–94 range yesterday before the earnings report—and down from 97 at the beginning of July, according to MarketAxess.

Whiting’s nearer-dated USD 874m 5.75% senior unsecured notes due 2021 traded today at 97.625 to yield 7.334%—214bps tighter than the 2026s—down from recent trades at par, according to MarketAxess. Its USD 408m 6.25% senior unsecured notes due 2023 traded today at 92.5 to yield 8.684%, down from trades at 98.75 to yield 6.636% yesterday before the earnings report, according to MarketAxess.

The stock fell to USD 10.96 and a market cap of USD 996.7m, down 38% from yesterday’s close. Whiting also has USD 562m 1.25% convertible notes due 2020, which dipped a point to trade at 96.35 to yield 7.041% today from trades at 97.4 to yield 5.284% before the earnings report.

“The issue overall is with the infrastructure going forward because the transportation’s not there. They’re producing more oil and more gas and NGL, but you have to have a place for that to go,” one of the sources said.

The constraints are expected to continue through 2019, according to Whiting management.

“Whiting is at the mercy of hoping that the commodity does better,” one of the sources said. “They’ll cut production and cuts wells to ride out the storm.”

In conjunction with the earnings report, Whiting said it’s implementing an organization redesign and cost-reduction strategy, and it slashed its workforce by 33%, or 254 positions, of which 94 are executive and corporate positions. The restructuring should result in USD 50m of annual cost savings, and the company will incur a one-time charge of USD 8m in 3Q19.

Whiting lowered full-year 2019 production guidance to 45–46.5 MMboe from a forecast of 46.7–47.7 MMboe three months ago. It forecasts oil production in the second half of the year to average 78,000 to 82,500 Bbl/day, slightly higher than 2Q19 oil production of 81,980 Bbl/day. During 2Q, oil comprised 65% of production.

After hitting a high for the last four years at USD 4.70 in November 2018, natural gas prices have since tapered off, last trading at USD 2.209, down 1.07% from yesterday’s close. Meanwhile, WTI prices hit a recent low of USD 42.53 per barrel in December 2018, climbing up to USD 54.11 per barrel, down 7.63% from yesterday’s close.

For the quarter, Whiting reported total operating revenue of USD 426.3m, down 19% year-over-year. The company doesn’t break out quarterly EBITDAX in its earnings release, but one source estimated USD 265m for 2Q19.

The company said it ended the quarter with bank covenant leverage at 2.5x (relative to a 4x covenant), implying USD 1.1376bn of covenant LTM EBITDAX, given the company’s USD 2.844bn of total debt.

In the second quarter, the company estimated that it burned USD 6.3m of cash, taking USD 233.4m of cash from operations and USD 10.1m from exploration, less a USD 18.1m working capital outflow and USD 231.7m of capex.

Whiting has USD 1.436bn in debt maturing within the next two years with the converts due 2020 and unsecureds due March 2021. On the earnings call this morning, executives said the company has options to help take care of the maturity, including selling assets or utilizing revolver borrowings.

In the last quarter, Whiting entered into agreements to sell USD 53m of non-operated properties that produced roughly 700 boe/day as of April 2019. According to Whiting management, the company has roughly 10,000 boe/day of non-operated properties that could be sold.

As a last resort, the company could also draw on its revolver, on which USD 1.71bn was available as of 30 June. Besides the revolver, Whiting’s liquidity includes a minimal USD 6.68m cash balance.

Sources comped Whiting’s longer-dated bonds to fellow Bakken operator Oasis Petroleum, which is 2.8x levered. Oasis trades tighter due to its diversified operations in the Permian Basin and its midstream segment, one of the sources said.

Oasis’s USD 400m 6.25% senior unsecured notes due 2026 last traded at 92 to yield 7.796%, down from recent trades in the 93–94 range, according to MarketAxess.

2019 Debtwire

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