Whiting likely to position for medium-term sale, industry sources say

08 September 2020 - 02:14 pm UTC

by Nate Trela in Denver

[Editor's note: Subsequent to publication, the second last paragraph has been amended to clarify that Whiting Petroleum has a market cap of USD 800m]

 

Whiting Petroleum [NYSE:WLL], the Denver-based upstream oil and gas company, is most likely to position itself as a pure play target, according to a sector executive and a sector attorney following the company.

 

Whiting emerged from bankruptcy on 1 September, freed from more than USD 2.7bn in debt and welcoming a new CEO and CFO who have sold two other upstream Rockies companies over the past six years. That track record, combined with shorter term equity holders, makes a sale look like the most likely mid-range path for the company, they said. The process could take a few years due to an uncertain oil market and sluggish Williston Basin M&A activity, they agreed.

 

Whiting emerged from Chapter 11 under a plan that called for it to pay secured lenders and vendors in full and leave unsecured noteholders with a 97% equity stake in the reorganized company.

 

Whiting has “some of the best acreage in the Williston” and emerged from Chapter 11 with a manageable debt situation, the attorney said. “It could take a bit to do all the touch-up work to make a sale happen," and the low debt means there is no pressure to make a sale happen quickly, he explained.

 

Whiting did not respond to a request for comment last week but in a 14 August statement announcing his hiring, CEO Lynn Peterson said his plans "should position the company well for the anticipated industry consolidation that we expect to see in the coming years, particularly in the opportunity-rich landscape of the Williston Basin." Peterson, who took over as Whiting CEO on 1 September, previously was CEO at SRC Energy, which was sold in January to PDC Energy in a deal with a USD 1.7bn enterprise value. Prior to joining SRC, he was CEO at Kodiak Oil & Gas, which sold to Whiting in a USD 6bn enterprise value deal in 2014. New CFO James Howard served in the same role under Peterson at both companies.

 

The sector executive noted that Whiting assumed USD 2.2bn in debt in the Kodiak deal and faced pressure to spend more to drill the acquired assets soon after the deal. Despite the debt concerns, the former Kodiak assets are considered the core of Whiting's holdings in the Williston and were bought when Whiting was running out of drilling locations, the executive said.

 

The executive and the attorney said the previous sales Peterson oversaw had some common aspects. Both were done with stock and assumed debt, with relatively low premiums. That is the same structure getting energy deals completed in 2020, the executive said. And both deals were done without an auction, with Peterson talking informally with other CEOs for some time before settling on a buyer. And in both deals, Peterson guided the company through non-core divestitures and small bolt-ons or leases to round out his companies' positions.

 

Challenges in positioning for a Williston sale

Both the attorney and executive anticipated that Whiting would want to sell its Redtail Niobrara asset as part of shaping up for a sale. Whiting ran a process for the position in 2018 but later announced it did not get the response it hoped for. Since then, it has had limited activity in the play. Its position is near acreage held by Crestone Peak and HighPoint Resources and the attorney said Whiting would likely need a buyer already active in Colorado to buy the asset because of the state's ever-evolving regulatory system. HighPoint is among the parties looking at acquiring bankrupt Colorado-focused E&P company Extraction Oil & Gas, according to a report by sister publication Debtwire.

 

In the Williston, Whiting should mostly work around the edges of its position in North Dakota as its position is fairly concentrated, the executive and advisor agreed. It has carved off non-core chunks in multiple transactions since the Kodiak deal.

 

A combination of a drop-off in oil M&A outside the Permian Basin, plus a number of Williston assets expected to come to market, could create challenges for Whiting to find a buyer in the short term. For example, QEP Resources planned to sell its Williston position to Vantage Energy Acquisition in late 2018 in order to become a pure play Permian company, but the deal was called off in February 2019.

 

Abraxas Petroleum, which has assets in the Williston, the Rockies and the Permian, announced in August it would renew a strategic review process it announced in October 2019. At that time, Whiting was reportedly in talks to acquire Abraxas.

 

There are a handful of potential buyers in the play, though they may be too small to swallow Whiting, which has a market cap of about USD 800m. 

 

Houston-based Eagle Mountain Energy Partners, backed by Pearl Energy Investments and NGP, announced in January it would look for acquisitions primarily in the Williston Basin. Liberty Resources II told this news service in February it saw a downturn in the market as a possible opportunity to make buys in the Williston.