Whiting Petroleum Corporation

Whiting Petroleum is reaping the benefit of sky high oil prices as the company reported a record first quarter and saw net income increase five-fold over 2007. Whiting has surprised on earnings in the last four quarters by an average of 21.69%. The company's 2008 P/E is 14.73.

Full Analysis

Whiting Petroleum Corporation (WLL - Snapshot Report) is an independent oil and gas company that explores primarily in the Permian Basin, Rocky Mountains, Mid-Continent, Gulf Coast and Michigan regions of the United States.

The company's strategy is to increase reserves and production through acquisitions and exploration. From 2003 to 2006, Whiting has increased its reserves per share at a compound annual growth rate of 20% and production per share at a growth rate of 8%.

On May 5, Whiting announced its latest acquisition. It will acquire gas wells and development acreage in the Flat Rock Natural Gas Field in Uintah County, Utah for a purchase price of $365 million. The deal is expected to close on May 30. WLL will finance the deal through its existing credit facility.

The company expects the acquisition to compliment existing gas fields in the Colorado and Greater Green River Basin of southwestern Wyoming. Whiting estimates that continued development may cause an approximately 70% increase in the company's net Flat Rock production in 2009 over 2008 and could double the current rate in 2010.

Whiting Reports Record Quarter

On May 5, Whiting Petroleum reported first-quarter earnings that beat Wall Street estimates by 16.67%, or 21 cents per share. Net income was $62.3 million, or $1.47 per share, compared to $10.7 million, or 29 cents per share, in the first quarter of 2007. Cash flow more than doubled in the quarter to $161.4 million compared to $74.1 million a year ago.

Profit soared as crude and natural gas prices rose. Whiting saw a 64% increase in the realized oil price, a 25% increase in the realized gas price and increased production by 6% over the year-ago period.

Production consisted of 69% crude oil and 31% natural gas.

Outlook for Second Quarter and Full-year 2008

Given the increase in cash flow and the continued strong crude and natural gas prices, the company announced they were increasing the exploration and development budget by $100 million in 2008 to $740 million from $640 million.

Whiting also said production guidance will be reduced by 190,000 BOE and 725,000 BOE for the second quarter and full-year 2008 as a result of the recently completed Whiting USA Trust I public offering.

The company will also update production guidance after the closing of the Utah acquisition on May 30.

Consensus Estimates Move Higher for the Second Quarter and Full Year

Brokerage analysts have been raising estimates on the second quarter and the full year in the last 30 days in anticipation of rising profits. For the second quarter, consensus estimates are up 35 cents to $1.29 from 94 cents per share. For the full year, estimates rose 85 cents to $5.26 from $4.41 per share.

Whiting, a Zacks #1 Rank (Strong Buy), has a forward P/E of 14.73. Its price-to-book is 2.20, under the industry average of 2.43. The company's five year average return on equity (ROE) is 14.06%.