Whiting satisfied with ‘re-engineered’ balance sheet, total liquidity

By Paul Deckelman

New York, June 23 – Whiting Petroleum Corp. has “completely re-engineered our balance sheet,” giving it ample liquidity and financial flexibility, the Denver-based oil and natural gas exploration and production company’s senior vice president for planning said Tuesday.

And Peter W. Hagist told participants at the Global Hunter Securities 100 Energy Conference in Chicago that the company “continues to move forward on selective asset sales.”

Hagist said that Whiting’s total liquidity as of the end of the first quarter on March 31 was $4.6 billion. This included $106 million in cash, a committed but undrawn $3.5 billion revolving credit facility and another uncommitted $1 billion in additional borrowing-base capacity that the company’s lenders reaffirmed at its most recent regular semi-annual redetermination.

“So [we have] lots and lots of liquidity,” Hagist continued. “We feel very, very good about this.”

No rush on asset sales

With all of that $3.6 billion of actual liquidity currently on hand, and with the option of getting lender commitments for another $1 billion of borrowings, should it so choose, Whiting is able to take its time and be choosy about whom it makes a deal with as it moves forward with its previously stated plans to sell non-core assets from among its holdings in the Rocky Mountain, Midwest, South and Southwest regions of the United States.

The company – which acquired vast new acreage as part of last year’s $3.8 billion acquisition of Denver neighbor and sector peer Kodiak Oil & Gas Corp. – had previously outlined plans to sell between $500 million and $1 billion of assets outside of its core operating areas in the Williston Basin region of North Dakota, the Niobrara geological formation in Colorado and the Permian Basin in Texas.

Hagist said that “we’ve got a lot of liquidity, so we’re being very selective in these sales – there are a lot of bargain-hunters out there who’ll try to pay 30 [or] 50 cents on the dollar. We’re not sure that makes sense right now for our shareholders.”

The Whiting executive told a questioner during the audience-participation portion of the presentation that “certainly, if you look at the metrics of our last sale” – a $108 million disposition of its interests in certain producing oil and gas wells located in various oil and gas fields across 14 states – “we did excellent on that sale, excellent for our shareholders.”

He also said that the recent price shifts in the oil and gas industry would have no impact on the company’s asset-sale plans.

“We said that we would try to sell $500 [million] to $1 billion - and that’s what we intend to do. We have several other asset sales working right now [besides the aforementioned $108 million transaction] and we’ll probably make some announcements next quarter.”

Whiting, he said, is “being selective - but our strategy is not changing.”

Actions bolster balance sheet

Hagist further noted that Whiting “has also been very strategic in how we’ve timed out the maturity base” on the company’s more than $5 billion of outstanding bonds, “so that gives us a lot of flexibility going forward.”

As part of the Kodiak acquisition, Whiting agreed to assume more than $2 billion of the latter company’s debt, including $775 million of credit facility debt due 2018, plus three series of outstanding bonds – $800 million of 8 1/8% senior notes due 2019, $350 million of 5½% senior notes due 2021 and $400 million of 5½% senior notes due 2022.

Earlier this year, it extinguished all of the Kodiak 5½% notes due 2021and 2022, most of them via a 101% change-of-control offer shortly after its acquisition of Kodiak closed, with the small amount of the bonds subsequently remaining then called for redemption at that same price.

It also made a change-of-control offer for Kodiak’s 8 1/8% notes due 2019, but holders only tendered $2 million dollars’ worth; Whiting chose to leave the remaining nearly $798 million of the notes outstanding.

As of March 31, Whiting’s capital structure consisted of $350 million of 6½% senior subordinated notes due 2018 that the company had issued back in 2010; nearly $1.9 billion of notes due 2019, consisting of the aforementioned still-outstanding Kodiak 8 1/8% notes plus $1.1 billion of its own 5% notes issued in September 2013; and $1.2 billion of 5¾% senior notes due 2021 that were also issued in September 2013.

The balance sheet additionally showed two new debt issues which the company had brought to market in March.

Whiting priced $1.25 billion of 1.25% convertible senior notes due 2020 at par on March 24, with a conversion premium of 30%, a conversion price of $39 and a conversion ratio of 25.6410 shares.

The company concurrently priced $750 million of 6¼% straight junk bond senior notes due 2023 at par in a quick-to-to-market transaction.

Whiting also tapped the equity market at that time, raising roughly $1 billion by selling 35 million shares of common stock at $30 per share.

Whiting received about $3 billion in total net proceeds from the three capital markets transactions it did in March, and used a portion of those funds to repay all of the amounts outstanding under its credit agreement – it had some $1.4 billion of credit facility borrowings on the books at the end of fiscal 2014 on Dec. 31 of that year, but had repaid all of it by the end of the 2015 first quarter. The company said that it would use the remainder of the proceeds for its general corporate purposes.

Hagist told the conference participants that “we are continuing to move forward with select asset sales that would further beef up the balance sheet – but we feel very good with what we’ve done already.”

Asked what Whiting might do with any surplus, or additional liquidity, he suggested that “we could pay down more of the debt [and] just make the balance sheet stronger,” but then added that “there are a number of options that we could look at.”

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