U.S. shale firm becomes first noteworthy bankruptcy

Oil-price crash claims hard-luck Whiting

Whiting Petroleum Corp. filed for Chapter 11 bankruptcy, the U.S. shale producer said on Wednesday, the first publicly traded casualty of crashing crude oil prices that are expected to bite into record U.S. output.

Whiting, once the largest oil producer in North Dakota’s Bakken region, said its creditors have agreed to cut its debt by about US$2.2 billion through an exchange of some of its notes for 97 per cent of new equity. Existing shareholders will own three per cent of the reorganized company.

Many shale oil and gas producers are faced with burdensome debt loads and have cut spending aggressively as oil prices have plunged by about two-thirds this year.

The coronavirus pandemic is slamming fuel demand, while Russia and Saudi Arabia are boosting supply in a fight for a shrinking market.

A U.S. drilling boom over the last three years lifted national oil production to a record of roughly 13 million barrels per day, but investors have grown frustrated with poor returns. Callon Petroleum and other companies have hired advisers to restructure debt.

Shares of Whiting were down US44 per cent at US37 cents.

The company’s market valuation has shrunk to US$61.5 million from as much as US$15 billion at its peak in 2011, when investors were discovering the burgeoning shale sector. As of Dec. 31, Whiting had US$2.8 billion in debt and more than US$585 million in cash on its balance sheet.

Whiting is among the most shorted oil and gas stocks, with more than 60 per cent of its outstanding shares borrowed for short selling, according to FIS Astec Analytics data.

SunTrust Robinson Humphrey analyst Neal Dingmann said filing for bankruptcy “was more of a temporary solution than a longterm sustainable plan.”

“We believe this financial demise was due to a combination of difficult macro conditions combined with sub-par operations for several quarters,” Dingmann said.

Analysts believe the energy sector is primed for more defaults in coming months. Whiting’s bankruptcy brings the trailing 12-month high-yield energy default rate to more than 11 per cent, and the year-end figure could ultimately surpass the 19.7 per cent level set in January 2017, according to Fitch Ratings.

Energy producers Chesapeake Energy Corp. and Chaparral Energy Inc. as well as natural gas producer Gulfport Energy Corp. are working with debt restructuring advisers or investment banks to shore up cash reserves.

Whiting was expected to produce about 42 million barrels of oil equivalent in 2020. It said it would continue to operate without material disruption to vendors, partners or employees.

It expects sufficient liquidity to meet financial obligations during the restructuring without additional financing.

Moelis & Co. is Whiting’s financial adviser, while Alvarez & Marsal is its restructuring adviser. PJT Partners is acting as financial adviser for creditors.

(BANKRUPTCY IS) MORE OF A TEMPORARY SOLUTION.

ANDREW BURTON / GETTY IMAGES FILES Many U.S. shale oil and gas producers are faced with burdensome debt loads and have cut spending aggressively as oil prices have plunged.