Tumbling oil prices around the world are shining a light on the U.S. shale producers that are most at risk because of heavy debt loads.
“I wouldn’t be surprised to see 55 to 60 bankruptcies” this year, compared with 50 last year, said Raoul Nowitz, managing director of restructuring and distressed asset support services at SOLIC Capital. That number may grow if the price slump persists for an extended period, he said.
Chesapeake Energy Corp.
Once a titan in shale, Chesapeake was spiraling downward even long before Monday’s market rout after it and rival drillers flooded North America with excess gas. Chief Executive Officer Doug Lawler recently told investors the survival strategy for his company includes selling assets, even though the acquisition market already is glutted with gas holdings.
Chesapeake’s push to transition into an oil producer could prove pointless now that oil has dropped more than gas year to date. The company bought time in December by swapping some debt but it still has $192 million of bonds coming due in August, out of a total debt load of more than $9 billion.
Heightened refinancing and liquidity risks led Fitch Ratings to downgrade Unit Corp. in January because of the Tulsa, Oklahoma-based explorer’s “prolonged operational deterioration” since a bond exchange announcement that same month.
The company, which generates most of its output from gas, announced last month that CEO Larry Pinkston will retire at the end of March and will be replaced by Chief Operating Officer David Merrill.
The Colorado driller disclosed last week that it held talks with holders of its long-term debt in an effort to reduce leverage. That came after Ultra Petroleum Corp. said in November it had hired the Houston boutique energy bank Tudor, Pickering, Holt & Co. to evaluate strategic alternatives that would include the possibility of a corporate sale, merger or other transactions.
Ultra filed for bankruptcy in 2016 and emerged the following year, just as the shale patch was beginning to crawl out of what was then the worst crash in a generation. The company’s bank recently cut Ultra’s credit line and borrowing base. Ultra shares have fallen 85% in the past year and traded for 8.5 cents on Monday.
California Resources Corp.
While California Resources announced last month an exchange offer for some of its bonds that could reduce total debt by $1 billion and extend the maturity of another $700 million by six years, the collapse in oil prices may make lenders balk at extending more credit to the state’s largest oil producer.
The company may require Brent futures, the global crude benchmark, to be higher than $65 to generate free cash flow while maintaining output, Spencer Cutter and Leon Huang, analysts at Bloomberg Intelligence, wrote last month in a report.
An oil explorer focused on the Bakken Shale in North Dakota, Whiting Petroleum Corp. has faced headwinds as low crude prices squeeze profits. The company announced last year that it would fire one-third of its workforce and scale back production targets after posting a surprise quarterly loss.
Whiting has about $1 billion of debt coming due over the next year, including about $260 million of convertible notes that mature in April. It’s working with advisers to come up with strategic options, but investors have their doubts: its notes due March 2021 are trading around 18 cents on the dollar with a yield of 286%, which suggests they will never be repaid. Shares have lost 89% of their value so far this year.