NEW YORK (TheStreet) -- Whiting Petroleum (WLL) , the largest producer from North Dakota's Bakken shale-oil rock formation, is poised for double-digit production growth in the backdrop of low oil prices.
Earlier this month, Denver-based Whiting became the leading Bakken producer by closing its $3.8 billion acquisition of Kodiak Oil & Gas. The combined entity produced almost 128,000 barrels of oil equivalents a day during the third quarter. By comparison, Continental Resources (CLR) , the former leader of Bakken, produced 121,600 barrels of oil equivalents a day from Bakken during the same period.
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Crude prices have fallen by almost 50% during the last six months, putting Bakken producers in a difficult spot. That is because Bakken has higher production and transportation costs than do other oil-producing regions, such as Texas' Eagle Ford and Permian Basin, which could remain profitable even if oil averages less than $60 a barrel in 2015.
The Bakken situation puts Whiting at a disadvantage, said Robert Du Boff, Oppenheimer's director of oil and gas research, and Jason Wangler, an analyst at Wunderlich Securities.
Furthermore, Whiting's exposure to lower crude prices is exacerbated by a lack of significant hedges. Whiting and Kodiak have hedged about 9,000 barrels a day of 2015 production, which is just about 5% of what the company could produce next year, according to Oppenheimer's estimates. On the other hand, Oasis Petroleum (OAS) , another Bakken-focused producer, has hedged more than half of its 2015 production.
Because of concerns related to Whiting's ability to survive in a down market, the company's shares have fallen by 65% from their 52-week highs in August. They are down 48% for the year-to-date, settling near $32 when the markets closed on Thursday. On Friday, the stock was up 9 cents to $32.
But, despite Whiting's exposure to the high-cost Bakken, it appears that investors and traders have overreacted, the two analysts said. Wangler, who does not own Whiting stock, wrote in a report on Dec. 16 that Whiting is one of those oil and gas producers that have a "high quality assets" base that can allow them to get through "these difficult times while preparing for a brighter future."
Whiting owns more than 660,000 net acres at Bakken and derives more than 80% of its total output from the region. Although Bakken is a high-cost oil-producing area, the wells there are largely oil-weighted, as opposed to natural gas. That makes the properties economical because oil remains a higher value commodity than natural gas, even at current price levels, Du Boff said.
Meanwhile, other analysts have predicted a gradual recovery in West Texas Intermediate oil prices to $70 a barrel, or even higher, as U.S. shale producers scale back their production growth plans for 2015. If oil were at $70 a barrel, Whiting would expect to generate a 43% rate of return, the company said in a presentation earlier this month.