Page 5 - NorthAmOil Week 14

NorthAmOil COMMENTARY NorthAmOil
“In 2019, we took proactive steps to reduce our cost structure and improve our cash flow profile,” said Whiting’s chairman, president and CEO, Bradley Holly. “We continue to build on these actions in 2020. The company has also explored a wide variety of alternatives to address our balance sheet and looming note matur- ities in a highly capital-constrained market environment.”
Whiting’s share price has fallen to $0.36 on April 8. At its peak, the share price was above $370 in 2014, before the previous collapse in oil prices. The company’s market valuation has shrunk to $32mn from around $15bn at its peak in 2011. As of December 31, 2019 Whiting’s debt totalled $2.8bn. It has struggled with debt throughout the period of lower oil prices that started in 2015, after acquiring Kodiak Oil & Gas in mid-2014 for $6bn, including $2.2bn in debt.
Oilfield service firms Schlumberger and Hal- liburton are listed as the largest non-bank cred- itors in Whiting’s bankruptcy filing, each with unsecured claims of over $8mn, while Baker Hughes has an unsecured claim of $2.6mn, mak- ing it the eighth largest creditor. Creditors also include pipeline operators, a trucking firm and a wastewater disposal company.
Whiting’s bankruptcy filing was described as “more of a temporary solution than a long-term sustainable plan” by a SunTrust Robinson Hum- phrey analyst, Neal Dingmann.
“We believe this financial demise was due to a combination of difficult macro conditions combined with sub-par operations for several quarters,” Dingmann said.
First of many?
If crude prices stay low, many other shale drill- ers could follow in Whiting’s footsteps, with less
chance of successfully emerging from bank- ruptcy protection than during the last downturn. This is because several years of lower profits have been compounded by shrinking access to capital as banks and other players have become less will- ing to lend to shale producers.
Chesapeake Energy was quickly identified as one of the shale drillers most at risk of falling into bankruptcy, alongside Whiting, when oil prices crashed last month. Indeed, the company – a high-profile shale pioneer that has been strug- gling to pay down its heavy debt load in recent years – hired debt restructuring advisers in mid-March. Other shale drillers that are already working with debt restructuring advisers or investment banks to shore up their cash reserves include Gulfport Energy and Chaparral Energy, according to Reuters.
In mid-March, the Financial Times cited one restructuring adviser that was working with multiple upstream players that were considering filing for Chapter 11 bankruptcy protection.
“Any company that is an E&P [exploration and production] company, other than the very big ones, is in danger ... unless the government offers them a bailout package it’s going to be a disaster,” the anonymous adviser was quoted as saying.
“Others will be following – $30 [per barrel] just doesn’t work for these companies,” a Ray- mond James analyst, John Freeman, was quoted in a separate Financial Times article as saying last week, in the wake of the news about Whiting’s bankruptcy.
Data from Rystad Energy suggest that a majority of the largest shale drillers need crude prices to be above $40 per barrel to break even. Few can survive if prices are in the $20s per bar- rel for a prolonged period.™
Chesapeake Energy was quickly identified as one of the shale drillers most at risk of falling into bankruptcy, alongside Whiting.
Whiting primarily focuses on drilling in the Bakken play in North Dakota.
Week 14 09•April•2020 w w w . N E W S B A S E . c o m
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