Whiting Petroleum Corp., one of the top oil producers in the Bakken shale play, filed for Chapter 11 bankruptcy on April 1.
In a news release, the Denver-based company said it had reached an agreement with certain debt holders to pursue a “consensual financial restructuring.” Whiting had explored a wide variety of alternatives to address its balance sheet and looming note maturities in a “highly capital-constrained market environment,” according to CEO Bradley J. Holly.
“Given the severe downturn in oil and gas prices driven by uncertainty around the duration of the Saudi/Russia oil price war and the COVID-19 pandemic, the company’s board of directors came to the conclusion that the principal terms of the financial restructuring negotiated with our creditors provides the best path forward for the company,” said Holly, who also serves as chairman of Whiting’s board, in a statement on April 1.
The move closely follows Whiting drawing $650 million on its revolving credit facility on March 27. The company had $262 million of converts maturing April 1, creating the likely trigger, according to a research note by Cowen & Co. LLC.
“In a largely expected move, Whiting is filing [for] chapter 11 due to its ~$3.5 billion debt load in the low commodity price environment,” David Deckelbaum, managing director and senior analyst at Cowen, wrote in the April 1 note. “We estimate Whiting was going to breach its total debt to last 12-month EBITDAX covenant of 4x in second-quarter 2020 as Bakken spot hovers near ~$8/bbl.”
The restructuring framework, which Holly said was agreed to by a “critical mass” of its debt holders, will provide de-leveraging of the company’s capital structure by over $2.2 billion. The agreement includes the exchange of all of its notes due 2020, 2021, 2023 and 2026 for 97% of the new equity of the reorganized company to be issued pursuant to the plan. Additionally, the company’s revolving credit facility will either be paid in full in cash and/or refinanced.
Whiting’s existing equity holders will receive 3% of the new equity of the reorganized company and warrants.
The bankruptcy also marks the first publicly traded casualty of crashing crude oil prices among U.S. shale producers, many of which are facing burdensome debt loads despite having aggressively cutting spending. Several other shale companies are rumored to have already hired restructuring advisers, including Chesapeake Energy Corp., Gulfport Energy Corp. and most recently Chaparral Energy Inc.
Basil Karampelas, managing director and head of the Houston office at advisory firm SierraConstellation Partners LLC, recently told Hart Energy that he expects the next three to six months will be “very turbulent” for the U.S. shale industry.
“We are already beginning to see of some bankruptcies and restructurings, which is going to create a lot of uncertainty and a real strain on the system,” he said.
Whiting is one of the largest independent E&P companies in the U.S. and controls one of the largest acreage positions in the Bakken/Three Forks resource plays in the Williston Basin. The company also has an acreage position in the Denver-Julesburg Basin of Colorado focused on the Niobrara Shale.
The company said April 1 it will continue to operate its business in the normal course without material disruption to its vendors, partners or employees. It also expects to have sufficient liquidity to meet its financial obligations during the restructuring without the need for additional financing.
Whiting has more than $585 million of cash on its balance sheet, according to the company release.
Moelis & Co. is financial adviser for the company. Kirkland & Ellis is its legal adviser. Alvarez & Marsal is acting as restructuring adviser. Jeffrey S. Stein of Stein Advisors LLC is the company’s chief restructuring officer.
PJT Partners is financial adviser for the consenting noteholders and Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as legal adviser.
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