A major shale producer was reported to be exploring a sale — but instead it just issued a ton of stock and debt
(Roy Luck/flickr)Empties headed back to North Dakota for more Bakken crude.
This isn't what investors were expecting.
On March 8, Bloomberg News reported that Whiting Petroleum, the largest producer in the Bakken shale formation ‚ which touches parts of Wyoming, North Dakota, and Canada — was exploring a sale.
But on Monday, the company announced plans to issue $1.75 billion in debt and 35 million shares of common stock, likely putting an end to any rumors surrounding a potential acquisition.
In after hours trade on Monday, shares of Whiting were down about 12% to below $34 per share. Shares closed regular trading at $38.39 on Monday.
The thing to dislike here for investors is what is called "dilution." By issuing more stock, any earnings the company brings in will be divided across a larger number of shares, reducing earnings for existing shareholders.
As of December 31, Whiting had just under 167 million shares outstanding, so Monday's announced offering is about 20% dilutive — meaning current shareholders will get about 80% of the earnings they would have previously received once the newly issued shares come to market.
Issuing new debt also makes the prospect of being acquired seem more distant, as an acquirer would now be on the hook for an additional $1.75 billion in addition to the $5.6 billion in debt the company had outstanding at the end of 2014.
Over the last year, shares of Whiting have fallen about 45% as the price of crude oil has crashed, and Whiting made our latest list of "Most Controversial Stocks" in the market.
On February 25, the company announced fourth quarter production that was up 30% over the prior year while adjusted earnings per share declined by 44%.
In its earnings release, the company also announced a capital budget of $2 billion, down about 50% from the prior year. In the company's earnings statement, Whiting CEO James Volker said, "We will focus our operations on our highest rate-of-return properties. At the same time, we are seeing lower completed well costs through service company price reductions and technology applications."
Bloomberg's report earlier this month said Whiting had reached out to potential buyers including Norwegian oil giant Statoil and said Whiting has been "exploring the sale of its oil and gas processing assets in North Dakota."
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