Shale Sector Restructuring: Whiting Petroleum Exits as Others Just Begin the Bankruptcy Process

Rystad Energy reported last month that despite a modest rise in oil prices from the historic lows of April, the North American shale sector is still facing the prospect of 150 operators filing for Chapter 11 bankruptcy protection by the end of 2022. According to data from the law firm Haynes & Boone, there have already been 32 such bankruptcies filed this year, amounting to $26 billion in outstanding debt.
Rystad’s model implies that if US oil prices maintain their station around the $40 mark, then there are at least another 68 bankruptcies coming by the end of 2021 with another 57 in 2022. The combined debt load of these potential bankruptcies is estimated to be $102 billion.
The company noted that the average debt of North American onshore oil and gas producers in 2020 is about $1.25 billion which is 160% higher than the average figure of $460 million during the 2015–2019 period.
Also in August, S&P Global reported that while prices remain depressed the perception of the oil and gas industry is improving amongst stock market investors.
Citing its probability of default metric, used to estimate the likelihood of a company entering default or bankruptcy protection, S&P Global said negative sentiments peaked in March and April during the height of lockdowns and the crude price collapse. For exploration and production companies, the default metric in July was less than half that of what it was in April.
Here are the latest updates on the North American shale sector’s efforts to consolidate and restructure:
Ursa Piceance Holdings, the parent of Denver-based Ursa Operating Company, and its affiliates have  filed for Chapter 11 bankruptcy protection on 2 September, according to court filings which report a debt of $282 million. If the company cannot secure a going-concern buyer by the end of the year it will seek to equitize its liens. The private-equity-backed company holds an undisclosed position in Colorado’s unconventional oil and gas fields. In April, Ursa Piceance faced two lawsuits for failure to pay fees owed to two subsidiaries of the pipeline giant Kinder Morgan.
Denver-based Whiting Petroleum said on 1 September that its Chapter 11 bankruptcy process is over and that it has restructured its balance sheet successfully. The operator said its exit plan includes a $750-million reserves-based credit revolver that matures in April of 2024. Whiting will also replace its top executive leadership as a result of the restructuring. The operator was the first publicly-traded shale company to file for bankruptcy in April after oil prices collapsed as the result of the COVID-19 pandemic. It holds almost 476,000 net acres in the Williston Basin.
Canadian oil and gas company Whitecap Resources said on 31 August that it was acquiring the privately held NAL Resources which owns assets in Alberta and Saskatchewan. The deal is valued at $118.9 million and includes a transfer of more than 58 million Whitecap shares to the seller.
Chesapeake Energy has hit a road bump in its Chapter 11 bankruptcy process that it entered in June to free itself of over $7 billion in debt. US energy regulators issued a filing in late August in support of midstream operator Energy Transfer in a dispute with Chesapeake over its request to nullify a $300-million pipeline contract. The Federal Energy Regulatory Commission (FERC) told the bankruptcy court that it has equal authority over such contracts. The final judgment by the bankruptcy court is expected to have wider implications in the US shale sector since there are other pending cases involving the cancellation of pipeline agreements.
Chaparral Energy said on 16 August that it filed for Chapter 11 protection after reporting a debt of $421 million at the end of last year. The operator plans to equitize $300 million of its unsecured debt, raise at least $175 million for reserves-based credit facility upon exit, and another $35 million in convertible notes. Chaparral reported that it had $32 in cash reserves to support operations through the bankruptcy. The Oklahoma City-based operator entered bankruptcy for the first time in 2017
Lilis Energy announced on 17 August that it is abandoning prior plans to seek private equity to sponsor a restructuring and will instead liquidate its assets through the Chapter 11 bankruptcy process. The original bankruptcy plan would have eliminated more than $34.9 million in debt. Lilis operates exclusively in the Permian Basin where it holds almost 16,000 net acres in the Delaware Basin.
San Antonio-based Abraxas Petroleum said on 17 August that it completed a refinancing deal with key lenders which will allow it to seek strategic alternatives. The agreement with lien holders will make the company’s cash flow more predictable, executives said in a statement. At the end of June, Abraxas owed $102 million to its chief creditors. The company operates tight-oil fields in the Rocky Mountains, Permian Basin, and the Williston Basin.
Oilfield services company FTS International declared on 24 August that it was entering into voluntary bankruptcy and would produce a restructuring plan in the next several weeks. The Ft. Worth-based pressure pumper said it has struck an agreement with the majority of its lenders that will shed more than $437 million from the company’s current debt load. FTS reported second-quarter revenue of $29.5 million and an active fleet count of 5, which was down from $151.5 million and 16 active fleets from the prior period.