WLL : NYSE : US$83.53
BUY
Target: US$108.00
COMPANY DESCRIPTION:
Whiting Petroleum engages in the acquisition,
development, exploitation, exploration, and production of
oil and gas properties. The company primarily focuses in
the Permian Basin, Rocky Mountains, Mid-Continent, Gulf
Coast, and Michigan regions of the United States.
Energy — Oil and Gas, Exploration and Production
POISED TO UNLOCK EVEN MORE OF THE WB & NIOBRARA; INITIATE BUY
Investment recommendation
We believe WLL has substantial upside given its ~845K net acres (pro
forma) in the core of the Williston Basin (WB), which can be further
exploited via downspacing and enhanced completion techniques. The
pending acquisition of KOG bolsters its inventory in the core of the WB.
Strong production growth in the Niobrara excites us as well. WLL trades
at a discount to its peers that we consider unwarranted. In our view,
continued solid execution will result in a narrowing of the valuation gap.
Thus, we initiate coverage with a BUY rating and $108 target.
Investment highlights
WLL is testing enhanced completion techniques in its latest
Bakken/Three Forks (TF) wells; if successful, we believe they can
add meaningful upside to EURs and rates of return. Additional tests
of slickwater fracs and coiled tubing completions are planned for
this year. Cemented liner/plug & perf completions have already
yielded a 23% improvement in EURs at little incremental cost.
The pending acquisition of KOG would enhance WLL’s inventory in
some of the best areas of the WB. The combined entity would have
>3,400 net future drilling locations. WLL plans to up the rig count to
26 by the end of 2015. It also intends to lower KOG’s average well
costs to $8.5M from $9.2M, which we consider very achievable. The
deal should be accretive on all relevant metrics starting next year.
We foresee rapid production growth in the Niobrara (~2.5x y/y
growth in 2015E). At its Redtail acreage, it is testing tighter spacing
in the B bench and also wells in the C bench; results from its 32-
well Horsetail Pad should come in January. Success there could
double its Redtail inventory to ~3,300 net locations from ~1,650.
The company should have ample liquidity to fund continued drilling
efforts in the WB and Niobrara. Even with the assumption of KOG’s
~$2.3B of debt, the balance sheet remains in solid shape.
Valuation
Our $108 price target represents a 10% discount to a ~$120 NAV
