NEW YORK/WILLISTON, N.D. (Reuters) - Whiting Petroleum Corp (WLL.N), North Dakota’s largest oil producer, has put Texas acreage and pipeline assets up for sale as an alternative to a sale of the full company, according to sources familiar with the matter.
This strategy could appease investors outraged by the possibility of any outright sale. It would dispose of assets not central to the core shale operations and generate cash for the company’s balance sheet, laden with more than $3 billion in debt after the December buyout of smaller rival Kodiak Oil & Gas.
JPMorgan (JPM.N) has shopped the full company in recent days to select parties, several people said. However, several potential acquirers’ interest in buying all of Whiting was tepid due to concerns about Whiting’s $5.63 billion debt load, the sources said.
One of the people said a bid deadline has been scheduled for next week.
The people were granted anonymity to speak freely about the process, but they were not authorized to speak on the record.
Representatives for Whiting, Hess and JPMorgan declined to comment. Representatives for Exxon, Continental, Statoil and were not immediately available for comment.
Although the Kodiak buyout did stress financial metrics at Denver-based Whiting, it gave the company unparalleled growth opportunities in the No. 2 U.S. oil-producing state for an exceptionally cheap price.
Whiting acquired Kodiak’s proven reserves of roughly 167 million barrels of oil equivalent for $23.77 per barrel, far below the current benchmark price for U.S. crude oil CLc1, roughly $47 per barrel.
Given that cost advantage, some on Wall Street were irked that executives would consider selling Whiting now, after a nearly 60 percent drop in the company’s stock since last summer. The logic of any deal seemed to contradict the dictum of buy low, sell high.
Yet media reports last week indicated that the company, led by 67-year-old Chief Executive Officer Jim Volker, was pursuing an auction process, essentially shopping itself to find the highest bidder. The news surprised two people at the company who are regularly briefed by senior management.
Investors said the timing would be inappropriate for a company known for having excellent acreage but whose share price has tumbled alongside oil.
“This is not the way you run a deal process,” said one major Whiting shareholder who declined to be named, citing concern he might offend the company’s management. The investor said he was “pissed” the company would even casually entertain the idea of any sale in this environment.
Investors also disliked the idea of seeing fast-growing Whiting bought out by a slow-growing U.S. major oil company such as Chevron Corp (CVX.N) or Exxon Mobil (XOM.N) in an all-stock deal, insisting the company can go it alone despite what is expected to be an increase in buyouts across the energy industry.
“I would much rather own shares of Whiting than shares in a multinational” oil company, a second major investor said.
Whiting has more than 64,000 acres in the Permian shale formation of western Texas holding roughly 17 percent of the company’s total proven oil reserves.
Much of this acreage is produced using waterflood and carbon dioxide injection, an expensive, older strategy typically favored by niche companies that prefer to operate on the fringe of the oil industry, not the fast-moving core of shale operations.
The deal for the Permian assets could fetch more than $900 million, according to a person briefed on the matter.
Whiting has signaled for weeks that its pipeline and gas-processing facilities are part of any possible asset sales, telling analysts last month, for example, that its Redtail processing plant could fetch interest.
The strategy is not new. In 2012, Whiting sold a 50 percent stake in a Belfield, North Dakota, processing plant to MDU Resources Inc (MDU.N) for $66 million.
Appetite for partnerships or outright sales could be higher now after Kinder Morgan (KMI.N) paid $3 billion two months ago to buy North Dakota pipeline and logistics company Highland Partners.
“There’s definitely a red-hot market right now for midstream assets,” one Whiting investor said.
Reporting by Mike Stone and Ernest Scheyder; editing by Terry Wade, Cynthia Osterman and Leslie Adler