Less than a week after dipping into its credit source to the tune of $650 million, Denver-based Whiting Petroleum Corporation is heading to Chapter 11 reorganization bankruptcy.
The company announced Wednesday it started Chapter 11 in the Southern District of Texas bankruptcy court and also did so after reaching agreement with some of its note holders.
Whiting stated it has more than $585 million of cash on its balance sheet and will continue to operate its business without “material disruption to its vendors, partners or employees.” The company said it expects to have sufficient liquidity to meet its financial obligations during the restructuring without the need for additional financing.
The agreement was made with holders of the company’s 1.25% convertible senior notes due 2020, 5.750% senior notes due in 2021, 6.250% senior notes due 2023 and 6.625% senior notes due 2026.
The agreement with the note holders also, according to Whiting leadership would “significantly reduce the company’s debt and establish a more sustainable capital structure pursuant to a consensual chapter 11 plan of reorganization.”
The plan will also provide for a significant de-leveraging of Whiting’s capital structure by more than $2.2 billion through the exchange of all of the notes for 97% of the new equity of the reorganized company.
Bradley J. Holly, the Company’s Chairman, President and CEO, commented, “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.”
Analysts say it’s pretty simple why Denver’s Whiting Petroleum took out $650 million in credit last week to stay alive. The company has a reported market value of more than $73 million yet its debt is a staggering $2.9 billion.
In a week since the company announced the borrowing of the $650 million, its shares dropped from 80 cents to 67 cents. A year ago, the company traded at $30.94 per share.
Leaders of the company had another dramatic decision facing them. Nearly $1 billion in its debt was coming due in the next 52 weeks and its notes due March 2021 are trading around 18 cents on the dollar with a yield of 286%. Bloomberg reported recently that it suggests the notes will “never be repaid.”
Whiting saw an average price of nearly $57 per barrel in the final quarter of 2019 and it wasn’t enough for the company to overcome losses in the period. Its adjusted losses increased compared to the final quarter of 2018 going from $4.8 million to $20.4 million. Shareholders lost on average 22 cents per unit.
Whiting’s operating revenues in the last quarter totaled $380.6 million, down nearly 20% from a year ago when its operating revenues came in at $473.2 million.
It’s hard to see that continuing with oil prices down near $20.
Whiting announced Feb. 27 it would slash its capital expenditures budget by $185 million, or 30%, to preserve cash and improve liquidity. Then on March 27, it said it would draw $650 million on its credit facility.
Source: Business Wire & Bloomberg