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.

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.

On the other hand, lower oil prices and an increase in spending following the acquisition of Kodiak could affect Whiting's balance sheet. Add an increase in the number of shares due to the acquisition and Whiting's cash flow per share could drop by 32% next year to $10.96, Du Boff, who has no position in Whiting stock, predicted in his report on Dec. 16.

Consequently, the company's funding gap -- the difference between the amount needed to fund the operations and available resources -- will widen, even if it keeps its capital spending largely flat in 2015.

But Whiting also has a lot of firepower. The funding gap can be filled with a borrowing base of around $4.5 billion, with a little more than $1 billion drawn, and from the sale of non-core assets, such as its North Ward Estes project in Texas as well as its interest in natural-gas plants, Du Boff wrote.

Eventually, Whiting's cash-flow per share should rebound by 2016 to $13.60 as the company integrates the newly acquired acreage in its portfolio and boosts its production by according to Oppenheimer estimates 59% in 2015 and 15% in 2016.

A Whiting spokesman declined to comment.

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This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


TheStreet Ratings team rates WHITING PETROLEUM CORP as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate WHITING PETROLEUM CORP (WLL) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow."

You can view the full analysis from the report here: WLL Ratings Report

At the time of publication, the author held no positions in any of the stocks mentioned.

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