Whiting Petroleum (NYSE: WLL) just can’t get any respect. In December, it was the number one energy producer in the Bakken Shale, North America’s hottest energy play. Production rose 28 percent last year, and cash flow from operations rose 18 percent. What’s more, the development needed to finance the forecast production increase of 12 to 16 percent this year can be financed entirely out of cash flow and the proceeds from the disposal or partnership agreement for some of the company’s secondary, maturing assets.

What’s more, Whiting comfortably exceeded analysts’ fourth-quarter earnings expectations

But the company has less proved reserves relative to its output than other Bakken producers, and the reserves it does have seem to fetch a lower valuation.

“The knock against Whiting is that you guys don’t have any inventory and in three years you’re going to be done,” Chief Operating Officer James T. Brown told an investment conference last month. In fact, he noted, Whiting has at least a 10-year inventory of drilling prospects in the play.

On a subsequent earnings conference call, Chairman and CEO James Volker highlighted the company’s relatively conservative capital spending plans as “a relatively strong strategy because
it keeps us from taking the risks that some people have fallen prey to.”

Whiting has gotten plenty of bang for its buck so far, registering the best average well productivity in the Bakken. Its wells have been on average 40 percent more productive than Continental Resources’ (NYSE: CLR), for example, though some of that might be attributable to Continental’s more aggressive expansion in the play.

In any case, Whiting executives believe some of their newer prospects can be as productive as the Sanish and Parshall fields driving the recent production gains, even if some in the industry are skeptical.

Yet the stock has lagged, losing 20 percent over the last two years while Continental’s was rising more than 40 percent.



This is perhaps why Whiting is perennially rumored as a buyout candidate, whether by an oil major, a tax-advantaged trust or even Continental, with its richer currency. The stock fetches less than 14 times this year’s estimated earnings and just 5 times trailing EV/Ebitda, which could prove accretive in a hurry to a well-heeled buyer.

But even if a suitor doesn’t materialize Whiting has solid prospects both in the Bakken and in the Colorado section of the Niobrara Shale, where it’s prospecting for gas. To this point, proven reserves are 80 percent highly valued crude and only 10 bargain-basement natgas.

The combination of a reasonable valuation and promising prospects is appealing. WLL is a new addition to the Conservative portfolio; buy it below $57.