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Imminent Sale of Whiting Unlikely After Stock, Debt Issuance

In a sign that a potential sale of Whiting Petroleum Corp., the largest producer in the Bakken Shale, was unlikely in the near term, the company announced plans to issue 35 million shares of common stock and $1.75 billion in debt.

Shares of the Denver-based company have lost 58.6% of their value since trading at $92.66/share on the Nasdaq exchange last August. Whiting closed at $38.39 -- with 4.9 million shares traded -- on Monday, the same day the company announced that it was offering $1.0 billion in convertible senior notes due in 2020, and $750 million of senior notes due in 2023.

Also Monday, Whiting said it would offer 35 million shares of common stock, adding that it expects to grant the underwriter in the offering a 30-day option to purchase up to an additional 5.25 million shares, if the underwriter exercises its option to do so.

On Tuesday, the company said it had priced its public offering at $30.00/share, with net proceeds totaling approximately $1.0 billion, after subtracting discounts and commissions to the underwriter. Whiting said it expects to close the offering on Friday, subject to customary conditions. The company also added that the convertible notes maturing in 2020 will bear interest at a rate of $1.25% per year, payable twice a year -- on April 1 and Oct. 1 -- beginning on Oct. 1, 2015.

The company said it expects to use the net proceeds from the offerings "to repay all or a portion of the amount outstanding under its credit agreement and any remainder for general corporate purposes."

Whiting was trading at $31.01/share (down $7.38/share, loss of 19.22%), with 36.5 million shares traded, in afternoon trading on Tuesday.

In a note Tuesday, David Tameron, senior analyst for Wells Fargo Securities LLC, said the debt and equity offerings by Whiting were "logical moves [to] shore up [the] balance sheet."

"From our view, [it] makes sense for the company to tap capital markets while the window is still open as it addresses...primary concerns [from Wall Street and investors], closing [a] 2015 funding gap [estimated at $1.1 billion for 2015] and strengthening the balance sheet," Tameron said. "Furthermore, the capital raise enables the company to remain flexible in monetizing midstream assets, which should lead to a higher transaction value than the alternative."

Tameron said Wells Fargo had initially estimated that Whiting would exit 2015 at a debt-to- EBITDAX (earnings before interest, taxes, depreciation, depletion, amortization and exploration expenses) target of 5.2x, but the debt and equity announcement could lower it to 4.0x. Monetization of the company's midstream and non-core assets could provide further relief.

"Overall, the news clearly indicates that an imminent sale of the company is unlikely -- per equity offering prospectus, Whiting is not exploring [a] strategic transaction -- but we believe that Whiting's scale and asset quality, within one of the...pre-eminent crude plays [in the United States] means the company will remain on the shortlist of potential takeout targets."

Earlier this month, a Whiting executive declined to comment on rumors that the company could possibly be up for sale (see Shale Daily, March 9). Whiting became the largest producer in the Bakken/Three Forks after acquiring Kodiak Oil & Gas Corp. in December for $6 billion (see Shale Daily, July 14, 2014).

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