WLL Whiting Petroleum Corp

By Collin Eaton and Andrew Scurria 

U.S. shale driller Whiting Petroleum Corp. filed for bankruptcy protection on Wednesday, becoming the first sizable fracking company to succumb to the crash in oil prices.

Whiting's bankruptcy filing comes as many U.S. oil drillers face pressure to meet hefty debt obligations they took out from banks and bondholders to make America into the world's largest oil and gas producer, as U.S. benchmark crude prices drop to their lowest levels in nearly two decades.

Oil prices are coming off their largest monthly drop ever as the coronavirus pandemic saps oil demand at the same time Saudi Arabia presses a price war against Russia by flooding global markets with crude. The price deterioration has pushed many U.S. shale companies to the brink of bankruptcy and upended efforts by those already in chapter 11 to restructure their operations.

If the downturn persists, a number of U.S. drillers could default on more than $32 billion of high-yield debt over this year, with a projected default rate of 17%, according to credit-ratings firm Fitch Ratings. Before crude tanked, Fitch had forecast a 7% default rate for 2020.

Last year, 41 U.S. oil companies filed for bankruptcy protection in cases involving $11.7 billion in debt, according to Dallas law firm Haynes & Boone.

With U.S. crude trading at around $20 a barrel -- down from above $60 a barrel in January -- dozens of U.S. shale producers are at risk of breaching debt covenants as their ratios of debt to pretax earnings balloon to untenable levels. To make matters worse, equity and debt markets that recapitalized producers in the last downturn a few years ago have largely closed to U.S. oil companies after years of poor returns, said Shawn Reynolds, portfolio manager at investment manager VanEck.

"There's hardly anything you can do," outside of restructuring debt, Mr. Reynolds said.

Whiting sought chapter 11 protection in U.S. Bankruptcy Court in Houston, after some bondholders agreed to swap $2.2 billion in debt for a 97% equity stake in the reorganized company.

Whiting said it needed to file for bankruptcy in part over worries that the company's borrowing capacity on a $1 billion loan would be cut.

In court on Wednesday, Whiting lawyer Brian Schartz said the company thought the borrowing base wouldn't go "anywhere but down." He said the company was still rounding up the required support from creditors for the debt-for-equity swap.

Bankruptcies in the U.S. oil patch are expected to gain momentum in the second quarter, accelerating as some drillers are forced to shut in production amid reduced oil demand and low available storage capacity, said Buddy Clark, a partner and co-chair of energy practice group at Haynes & Boone.

"It's a dire situation for everyone," Mr. Clark said, noting that even bankruptcy courts are struggling to operate amid the pandemic and are under pressure from an influx of new cases. "It's a weird dynamic, but people will want to get into bankruptcy quickly in order to beat the rush."

A number of oil-and-gas companies, including Chesapeake Energy Corp., Ultra Petroleum Corp. and California Resources Corp., have either warned they may not stay current on their debts or hired restructuring advisers to negotiate with creditors.

Denver-based Whiting, one of the largest drillers in North Dakota's Bakken Shale, had come under financial pressure even before U.S. crude prices collapsed.

Chief Executive Brad Holly said the company's proposed restructuring was its "best path forward" given uncertainty about how long the Saudi-Russia price war and the coronavirus pandemic would go on.

Whiting foreshadowed its bankruptcy by taking steps on Friday to protect $3.4 billion in net operating losses, which are potentially valuable tax assets that could be used to reduce future federal taxes.

The company also drew down $650 million from its loan facility last week to generate cash and won't make a $262 million debt payment that comes due Wednesday. The maturing bond has lost more than 90% of its value since mid-February, according to MarketAxess, and closed at 6 cents on the dollar on Wednesday.

Before the bankruptcy, Whiting's top five executives got board approval for $14.5 million in cash payments last week, including $6.4 million for Mr. Holly, according to a regulatory filing. The executives would be required to waive their participation in a previous bonus program and forfeit equity awards granted earlier this year.

Under Whiting's restructuring proposal, top executives are in line to receive up to 8% of the stock in the reorganized company when it emerges from bankruptcy. Mr. Holly and other insiders together own less than 1% of the company, according to data from FactSet.

Write to Andrew Scurria at Andrew.Scurria@wsj.com

(END) Dow Jones Newswires

April 01, 2020 17:53 ET (21:53 GMT)

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