WLL) emerged from Chapter 11, WLL stock is up more than 3,000%. But there’s a catch.” data-reactid=”12″>As I write this, the day after Whiting Petroleum (NYSE:WLL) emerged from Chapter 11, WLL stock is up more than 3,000%. But there’s a catch.
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Before you run out and buy some of this bad boy, keep in mind that it’s only trading around $23 because the old equity shareholders got one new share in Whiting for 75 of the old. Reverse that, and it’s trading at something closer to 25 cents, nearly 50% below where it closed on Sep. 1.
Whiting’s stock opened at $28 on Sep. 2 before losing altitude shortly after the opening bell. It dipped to $19 and struggled back.
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If you think that Whiting’s emergence signals a second coming, you might want to hang on to your wallet. There’s a lot that still has to go right before anyone makes money from the struggling oil and gas company.
did not bode well for its stock. Just because he’s no longer around doesn’t mean it gets WLL out of the doghouse.” data-reactid=”35″>In July, I wrote that the sexual-misconduct allegations against former Chief Executive Officer, Brad Holly, did not bode well for its stock. Just because he’s no longer around doesn’t mean it gets WLL out of the doghouse.
Here’s why.
Owners of WLL Stock Getting Clipped
3% of Whiting’s new equity with the creditors owning the rest. In addition to an exchange ratio of one share for every 75 of the old, investors also got Series A warrants exercisable at $73.44 anytime before Sep. 1, 2024. They also got Series B warrants exercisable at $83.45 anytime before Sep. 1, 2025.
Based on the Aug. 31 closing price of 80 cents, a new share was valued at $60.15. However, based on 57 cents, where it closed Sep. 1, the new share fell to a value of $42.86. As I said above, they’re trading around $19 more than halfway through Sep. 2 trading.
That’s a 69% haircut over two days. About the only glimmer of hope is that the WLL share price is still trying to find its footing.
So what are the odds WLL will return to $60?
The Odds of Returning to $60 Aren’t Good
Based on WYCO’s additional assumptions, including an enterprise valuation from Moelis & Co., the mid-point equity value per share is $27.46. The unsecured note holders, who’re getting 97% of the stock, are estimated to receive 15.5 shares per $1,000 in principal. That puts the share value at $15.48, a long way from $27.46.
However, given oil prices are trending slightly higher, and investors get Series A and Series B warrants with their new shares, WYCO believes speculative investors might want to buy WLL stock below $25.
$336 million in effective liquidity.
If you’re new CEO Lynn Peterson or any of the other senior managers, you’ve got to be much happier about the future than you were a week ago.
The question is whether it’s enough to get WLL stock moving toward $60.
The Bottom Line
According to the company’s reorganization documents, Whiting is going to generate estimated annual revenues over the next five years averaging between $623 million on the low end and $688 million on the high end. In terms of earnings before interest, taxes, depreciation, and amortization, it will range between $272 million and $340 million.
oil prices traded above $73, Whiting finished the year with $202.6 million in EBITDA from $2.08 billion in revenue. That’s an EBITDA margin of just less than 10%.
For the next five years, Whiting’s estimating oil prices of between $38 and $47 a barrel, so I have a hard time understanding how it’s going to deliver anywhere near $300 million in EBITDA in the near term.
While the warrants are a nice throw-in on the deal, I find it hard to believe that its share price is going to rise by 344% over the next five years, given the state of the oil industry at the moment.
That could change–and pigs could fly.
“New” WLL stock is just like “old” WLL stock. It’s only for speculative investors. If this is for your kid’s education, step away from the buy button. It’s not worth it.
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