Whiting Shale And The Battle To Survive

How much longer can the US shale industry survive. Amid a dreadful run  of earnings reports that  came out in recent days, and seem to support the notion that the results were not just a blip but indicative of problems bedevilling the sector as a whole and may well be the precursors to a fully-fledged breakdown.

Whiting Petroleum slumped  34% to $11.71 in New York trading, after earlier reaching $11.47.The company has been left with no option but to lay off a third of its workforce.

"We reorganized from a corporate model to an asset-based model," Holly told analysts and investors Thursday on a conference call. "Everybody is about creating value now."

Concho Resources share price tumble 22 percent when it disclosed several problems at once. Profits fell by 25 percent despite production increases. Concho conceded that it would slash spending and slow the pace of drilling in the second half of the year.

Tim Leach Concho’s CEO told analysts the company’s aiming for “a free cash flow inflection in 2020.”

At the start of  the  year the company had 33 active rigs. In t he second quarter that fell to  26 rigs in operation, it has since fallen to 18.

 “We made the decision to adjust our drilling and completion schedule in the second half of the year to slow down and not chase incremental production at the expense of capital discipline,”

Concho was valued at more than $23 billion has recently as the spring of 2018 and having since acquired the $7.6 billion purchase of RSP Permian Inc., now has a market cap of less than $16 billion.”. Whiting Petroleum had an even worse week. Its stock melted down on Thursday, falling by 38 percent after reporting a surprise quarterly loss that badly missed estimates. The company announced that it would cut its workforce by a third. According to the Wall Street Journal and Wood Mackenzie, a basket of 7 shale drillers posted a combined $1.58 billion in negative cash flow in the first quarter, four times worse than the same period a year earlier.

While the results, in many cases, were bad, the declines in share prices were hugely amplified by the announcement of new tariffs on China, which caused a broad selloff not just in the energy sector, but for equities of all types. Here is a sampling of how the share prices of some oil companies fared on Thursday:

Whiting Petroleum -38 percent

Concho Resources -22 percent

Pioneer Natural Resources -7.5 percent

EOG Resources -5.5 percent

Devon Energy -6.8 percent

Continental Resources -7.8 percent

Royal Dutch Shell -6.1 percent

Chevron -2 percent

SM Energy -9.0 percent

But the poor quarterly performances were true before President Trump took to twitter. Even with oil down and stocks perhaps looking cheap, “it’s hard to call it a contrarian opportunity right now,” Matt Maley, chief market strategist at Miller Tabak, told CNBC. “This group has really been dead money most of this year.”

Whiting Petroleum Corp. plunged 35% for its biggest-ever drop after the oil explorer fired one-third of its workforce, scaled back its full-year production target and posted a surprise quarterly loss.

The Denver-based oil explorer’s decline extended the 12-month loss to 74%. Fellow shale explorer Concho Resources Inc. also was hammered by investors, losing 23% of its market value, after disclosing botched results from an experimental drilling project. Pioneer Natural Resources Corp., Diamondback Energy Inc. and Cimarex Energy Inc. also fell. For Whiting, the elimination of 254 jobs will result in $50 million in annual cost savings, according to figures released on Wednesday.

“We aim to be as efficient as possible and that is why we made the difficult decision to reduce our workforce in order to realize significant annualized cost savings,” Chief Executive Officer Brad Holly said in a statement Wednesday.

Whiting joins industry peers Pioneer Natural, Laredo Petroleum Inc. and Devon Energy Corp. in cutting headcount as investors increasingly focus on general and administrative budgets. At many oil producers, executive compensation can amount to as much as 20% of general and administrative costs, Evan Lederman, a partner at New York-based Fir Tree Partners, said in an interview earlier this year. The Whiting job cuts included 94 executive and corporate-level positions.

Weak Pricing

The company posted a second-quarter loss of 28 cents per share, while the average of analysts’ estimates compiled by Bloomberg was for a 27-cent profit. The miss was due to a combination of weak natural gas liquids pricing, higher-than-expected operating costs, and disappointing oil volumes, analysts at Raymond James said in a note.