For a while, Oasis Petroleum Inc. (NYSE:OAS)‘s premium to fellow Bakken shale driller Whiting Petroleum Corp (NYSE:WLL) was never been that great. For the last six months, the spread between the two has usually been a couple bucks per share if that. That means if Whiting Petroleum Corp (NYSE:WLL) traded for $7 a share, Oasis Petroleum Inc. (NYSE:OAS) would have traded for $8.50 or $9 per share six months ago. Now, due to various reasons, the spread between Oasis and Whiting is now over $4 per share. As of Friday’s close, Whiting Petroleum Corp (NYSE:WLL) traded for $8.22 per share while Oasis Petroleum Inc. (NYSE:OAS) traded for $12.37 per share. If you had polled many investors six months ago and asked how wide the spread would be between the two, most would have guessed that the spread would have stayed the same or even narrowed over six months. Six months ago, many investors thought Whiting Petroleum Corp (NYSE:WLL)’s stock was abnormally low due to the mandatory convertible offering, which basically nuked bullish sentiment in Whiting for a few quarters. Once that mandatory convertible offering had passed, the reasoning was that the two companies would trade closer together because they have somewhat similar assets (Oasis’ production is lower cost by a bit) and are affected by the same factors, namely WTI prices, shale sentiment, the Bakken-WTI discount, whether export pipelines will be approved, etc.
External factors have caused the two to diverge a bit, however. First Whiting Petroleum Corp (NYSE:WLL)’s earnings reports have been arguably worse than Oasis Petroleum Inc. (NYSE:OAS)’s earnings results. Second, many think there is the chance that oil prices could weaken if OPEC doesn’t get its act together and extend their cuts (something that the cartel just said they would consider). If oil prices weaken, some Wall Street analysts and many in the market, evidently, think that Oasis Petroleum Inc. (NYSE:OAS) would be in a better position than Whiting Petroleum Corp (NYSE:WLL). Having said that, read on to see the smart money’s view on both stocks and our take on how the spread might play out:
What does Smart Money Sentiment Say?
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In terms of smart money sentiment, of the 742 elite funds that we track, 34 owned shares of Whiting Petroleum Corp (NYSE:WLL) at the end of the fourth quarter, down one from the previous quarter. In the same time frame, 38 top funds had a bullish position in Oasis Petroleum Inc. (NYSE:OAS) at the end of 2016, up 5 funds from the previous quarter. From those numbers, it certainly seems the smart money liked Oasis Petroleum Inc. (NYSE:OAS) a tad more.
As for how the spread might play out, we think that anything is possible. Royal Dutch Shell’s cross listed shares once diverged so much that it frustrated the smart guys at Long Term Capital. On one hand, the spread between the two frackers could diverge even further if Oasis management executes and Whiting management doesn’t. On the other hand, if oil prices collapse, we think the spread on a dollar basis will narrow (although perhaps not on a percentage basis). Ultimately, the market is saying that Oasis is the safer play, but Whiting may have more upside if oil prices normalize.