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Rating Action:

Moody's changes Whiting's outlook to stable from positive

19 Sep 2019

New York, September 19, 2019 -- Moody's Investors Service ("Moody's") changed Whiting Petroleum Corporation's (Whiting) outlook to stable from positive, and affirmed its B1 Corporate Family Rating (CFR), B1-PD Probability of Default Rating (PDR) and its B2 senior unsecured notes rating. Moody's lowered Whiting's Speculative Grade Liquidity Rating to SGL-3 from SGL-1.

"Whiting remains singularly focused on the Williston Basin's Bakken and Three Forks formations where it has reduced costs through maximizing drilling and completion efficiencies and has stabilized production, targeting positive free cash flow," commented Andrew Brooks, Moody's Vice President. "However, debt reduction is of paramount importance to the company as Whiting confronts a challenging near-term debt maturity profile."

Lowered :

..Issuer: Whiting Petroleum Corporation

.... Speculative Grade Liquidity Rating, Lowered to SGL-3 from SGL-1

Outlook Actions:

..Issuer: Whiting Petroleum Corporation

....Outlook, Changed To Stable From Positive

Affirmations:

..Issuer: Whiting Petroleum Corporation

.... Probability of Default Rating, Affirmed B1-PD

.... Corporate Family Rating, Affirmed B1

....Senior Unsecured Conv./Exch. Notes, Affirmed B2 (LGD5) from (LGD4)

....Senior Unsecured Notes, Affirmed B2 (LGD5) from (LGD4)

RATINGS RATIONALE

Whiting's B1 CFR reflects the improved leverage and coverage metrics it has achieved reflecting the 50% reduction in its debt since peak year 2014 levels. Despite this substantial debt reduction to date, Whiting continues to carry high absolute debt levels, with financial leverage at $22,762 debt on production and $8.00 debt on proved developed reserves at June 30. Whiting is challenged by its near-term debt maturity profile with a $562 million convertible note maturity due April 1, 2020 (on August 29, the company announced a tender offer for up to $300 million of the notes), $873.6 million 5.75% senior notes due March 15, 2021 and $408.3 million senior notes due April 1, 2023.

Whiting is in a stronger position to reinvest in its production, which it has stabilized after falling steeply following 2016's collapse in crude prices. Second quarter production averaged 127,090 barrels of oil equivalent (Boe) per day, which was virtually flat compared with 2018's second quarter, although hampered to a certain extent by near-term basin infrastructure constraints. Significantly, Whiting achieved production stability while generating $134 million positive free cash flow in 2018 ($77 million negative free cash flow over the first six months of 2019 on lower realized commodity prices). The company has targeted operating within cash flow by year-end 2019 and full-year 2020, generating cash for debt reduction. Evidencing its improving credit metrics, retained cash flow (RCF)/debt was 33% at June 30, 2019 compared with 2017's full-year 18%.

Whiting's B1 CFR is also supported by the scale of the company's reserves and production, a deep drilling inventory in the core of the Bakken Shale, and a track record of organically growing its oil-weighted production. In addition to its Williston Basin production, Whiting produced 13,137 Boe per day in Colorado's DJ Basin (the "Redtail" area). Considered non-core, Redtail is being operated to maximize cash flow, with minimal capital spending allocated for well completions. Over the first half of 2019, Whiting put 61 operated wells on production in the Williston while limiting Redtail activity to the completion of drilled but uncompleted wells (DUCs).

The operations of independent exploration and production companies such as Whiting, face increasing environmental regulations and scrutiny of their operations, as well as limitations governing aspects of their producing activities. North Dakota places stringent regulations on the extent of associated natural gas capture, with which Whiting remains in compliance despite aggregate industry production which is currently out of compliance given infrastructure constraints. Governance risks we considered in Whiting's credit is the emphasis a recently reconstituted senior management team has placed on financial strategy, including lowering operating costs, generating free cash flow and improving its balance sheet.

Whiting's SGL-3 rating reflects adequate liquidity. While its $2.25 billion secured borrowing base revolving credit facility, under which $1.75 billion is committed, was drawn only in the amount of $40 million at June 30, Moody's acknowledges that the revolver's available unused capacity could be used to refinance upcoming debt maturities. Under the terms of a September 13, 2019 amendment to its revolving credit facility, subject to a number of conditions including compliance with a 3.25x debt/EBITDAX leverage ratio, Whiting is permitted to repurchase, redeem or prepay its unsecured notes under the revolver. However, heavy utilization of the revolver would restrict Whiting's financial flexibility to confront weaker commodity prices, although the company has reiterated its determination to achieve positive free cash flow by year-end 2019. Whiting's revolving credit facility is scheduled to mature in April 2023. However, to the extent that any of its senior notes have a maturity date prior to 91 days after April 12, 2023 (specifically the $873.6 million notes due March 2021), and other than the 2020 convertible notes, the revolver's maturity date would advance to 91 days prior to the March 2021 maturity date of the 2021 notes, or December 15, 2020. Without a resolution of the springing maturity, the revolver would go current on this date.

The credit facility is secured by substantially all of Whiting's oil and gas properties. We expect Whiting to remain in compliance with its financial covenants, a current ratio exceeding 1x and debt/EBITDAX less than 4.0x. The B2 rating on Whiting's unsecured notes is one notch below its B1 CFR, reflecting the subordination of these notes to Whiting's secured revolving credit facility and the revolver's priority claim to the company's assets. However, if Whiting's revolver is substantially drawn to finance its 2020 and/or 2021 unsecured notes maturities, or if unsecured debt is refinanced on a secured basis, it is probable that Whiting's unsecured notes rating would fall to B3, two-notches below its B1 CFR.

The rating outlook is stable, reflecting Moody's view that Whiting is approaching near-term cash flow break-even. Whiting's ratings could be upgraded subject to successfully addressing its near-term debt maturities, should production continue to stabilize while generating positive free cash flow, while maintaining a leveraged full-cycle ratio (LFCR) in excess of 1.5x with debt on production under $20,000. Whiting's ratings could be downgraded if a resolution of upcoming debt maturities reduces liquidity available to Whiting, if RCF/debt drops below 20% or its LFCR drops below 1.25x on a reversal of recent production efficiencies.

The principal methodology used in these ratings was Independent Exploration and Production Industry published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Whiting Petroleum Corporation is an independent exploration and production company headquartered in Denver, Colorado, 90% of whose production is derived from the Williston Basin's Bakken and Three Forks formations.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Andrew Brooks
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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