Whiting Petroluem
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Risk Analysis
Tuesday, February 14, 2006
Presented by:
CMRC Consulting
Table of Contents
Section
Page
Executive Summary
Service Team
Consulting Questionnaire
Sources
Appendix
Executive Summary
Thank you for contacting CMRC Consulting for a Risk Analysis for Whiting
Petroleum. We welcome the opportunities to discuss our qualifications.
It is our goal to provide Whiting Petroleum with answers to the issues outlined in the
group assignment. In providing a risk analysis for Whiting Petroleum, we gathered and
analyzed information from internal sources such as SEC form 10-K, annual report, press
releases, and web page and external sources such as the Wall Street Journal, the Energy
Information Administration, Forbes, and other articles on oil industry trends.
In analyzing Whiting Petroleum, we view the biggest potential risks to be the changing price
of oil, the ability to successfully acquire and integrate new reserves, and
We look forward to meeting with you on Tuesday, February 14, 2006.
Service Team
Melissa Medina
Senior Vice President
Christina Grabowski
Managing Director
Chivonne Mathews
Senior Client Executive
Ryoko Miyanaga
Senior Client Advisor
Whiting Petroleum
Risk Analysis
Two Greatest Strategic Risks
Whiting PetroleumÐŽ¦s strategic risks stem from its growth strategy and the market
that it competes in. Before analyzing its strategic risks, we must first fully understand its corporate strategy. Whiting PetroleumÐŽ¦s corporate goal is focused on growth by increasing reserves and production per share. This goal is accomplished through a strategy of complimentary acquisitions, efficiently exploiting undeveloped oil and natural gas reserves, and drilling a number of exploratory wells in core regions (home, Whiting Petroleum web page).
Whiting Petroleum has the greatest strategic risk in being able to handle the
uncertainties of its current acquisitions while moving forward to explore future
acquisitions in a continually changing environment. The factors that increase the risk
of this aggressive acquisition strategy include:
Inaccuracies of reserve estimates and the assumptions underlying these estimates
Ability to integrate acquired business and properties
Timing of acquisitions
Underperformance of acquired properties
Unforeseen additional expenses needed to operate acquired reserves
Liabilities carried over from previous management
These factors need to be considered by Whiting Petroleum before acquiring a property.
Whiting Petroleum looks at the upside of speculative risk when purchasing reserves. The
upside risk is that the reserves will provide profit and add to shareholder value. The factors
listed above create a major strategic risk for Whiting Petroleum. Any one of these factors can
turn an acquisition into a loss. A combination of these factors can increase the severity of the
loss from an acquisition.
The second greatest strategic risk deals with the products that Whiting Petroleum
produces. The company owns and operates oil and gas properties. This company is
simply an energy company with all revenue relying on its ability to produce oil and
gas. With oil consumption increasing at a faster rate than production, the price of oil
continuously increases and oil companies are experiencing increased profit margins (main
page, Gibson Consulting website).
Petroleum can rake in big profits over the next few years, but there is concern
over the demand for oil in the long-run. The increased prices of gas and oil bring
consumer anger and political interference. It is seems inevitable that in the coming
years, there will be a switch to alternative energy sources such as cellulosic ethanol.
Hybrid vehicles are a preview of how the future of motor vehicles are going to run. The demand for other energy sources is going to increase, as consumers get tired of the high prices of gas and oil. Car manufactures are increasingly experimenting with alternatives to oil. The U.S. government is also favoring alternative fuels. In the State of the Union address on Tuesday, January 31, 2006, President Bush said energy made from ÐŽ§wood chips, stalks or switch grassÐŽÐ could