Whiting files for Chapter 11 bankruptcy as oil prices hover at $20

Shale producer Whiting Petroleum Corp (WLL.N) said on Wednesday it filed for Chapter 11 bankruptcy, the first major casualty of a free fall in crude prices to $ 20 a barrel.

Whiting’s fall from grace comes at a time when the coronavirus pandemic and an oil price war between Russia and Saudi Arabia have led to a 50% drop in crude prices since the beginning of March, forcing oil and gas producers to restructure their debt.

U.S. production has hit a record 13 million barrels of oil per day, with producers expecting a rapid cutback in output.

Whiting, once the largest oil producer in North Dakota’s Bakken region, has seen its market capitalization shrink to $ 61.5 million from as much as $ 15 billion at its peak in 2011, when investors were first discovering the burgeoning shale sector.

The company said on Wednesday that it reached an agreement with its creditors to cut its debt by about $ 2.2 billion through an exchange of some of its notes for 97% of new equity. Existing shareholders will own 3% of the reorganized company.

The company had $ 2.8 billion in debt as of Dec. 31 and more than $ 585 million in cash on its balance sheet.

Whiting, which was expected to produce about 42 million barrels of oil equivalent in 2020, said it would continue to operate its business in the normal course without material disruption to its vendors, partners or employees.

It currently expects to have sufficient liquidity to meet its financial obligations during the restructuring without the need for additional financing.

SunTrust Robinson Humphrey analyst Neal Dingmann said filing for bankruptcy “was more of a temporary solution than a long-term sustainable plan.”

“We believe this financial demise was due to a combination of difficult macro conditions combined with sub-par operations for several quarters,” Dingmann said.

Shares of Whiting were down 44% at 37 cents. It is among the most shorted oil and gas stocks, with more than 60% of its outstanding shares borrowed for short selling, according to FIS Astec Analytics data

Moelis & Co is Whiting’s financial adviser, while Alvarez & Marsal is its restructuring adviser. PJT Partners is acting as financial adviser for creditors.