Extraction Oil & Gas Inc. filed for Chapter 11 bankruptcy early June 14, making it the second largest U.S. shale producer to declare bankruptcy in the latest downturn.

“After months of liability management and careful analysis of our strategic options, we determined that a voluntary chapter 11 filing with key creditor support provides the best possible outcome for Extraction,” said Matt Owens, who was appointed Extraction’s CEO a few months ago.

In March, Mark Erickson, who had served as chairman and CEO of Extraction since founding the Denver-based company in 2012, stepped down. Erickson has been on a medical leave of absence since April 2019, according to a company filing with the U.S. Securities and Exchange Commission.

Extraction is the second largest U.S. shale producer to file for bankruptcy since the oil market collapse driven by the COVID-19 pandemic. Fellow shale producer Whiting Petroleum Corp. filed for bankruptcy in April.

Focused primarily in the Wattenberg Field in Colorado’s Denver-Julesburg Basin, Extraction has been on the brink of bankruptcy since last month. 

In May, Extraction announced lenders under its revolving credit facility elected to reduce commitments to $650 million from $950 million. The company ended the first quarter with $163 million of available liquidity after withdrawing its remaining available capacity. In a company filing, Extraction introduced going concern language and indicated it will likely breach covenants on June 30 regarding its credit facility.

On June 14, Extraction entered into a restructuring support agreement with certain of its unsecured noteholders, which the company said will facilitate a “swift exit from Chapter 11.” The agreement outlines a debt-for-equity swap, pursuant to either a standalone restructuring or a combination transaction, that will leave the debtors’ unsecured noteholders with the majority of the company’s equity.

Extraction said it also obtained a committed $125 million debtor-in-possession (DIP) financing facility underwritten by Wells Fargo Bank, National Association. The DIP facility includes $50 million in new money, up to $15 million of which will become immediately available upon bankruptcy court’s order, and a “roll-up” of $75 million of revolving loans under its existing revolving credit agreement.

The company expects to maintain its operations as usual throughout the restructuring process.

Kirkland & Ellis LLP is serving Extraction’s legal counsel. Moelis & Co. LLC and Petrie Partners LLC are financial advisers to the company. Alvarez & Marsal is the company’s restructuring adviser.