Oil Price War Claims Another Victim
The oil price war has already claimed its first victim.
Whiting Petroleum Corp. (NYSE: WLL), once the largest oil and gas producer in North Dakota’s Bakken Shale, has filed for Chapter 11 bankruptcy becoming the first major shale producer to do so in the current year. Whiting has cited the “severe downturn” in oil and gas prices courtesy of the Saudi Arabia-Russia oil price war and COVID-19-related impact on demand.
But this shale producer has no plans to go into a state of suspended animation: Whiting has announced that it will go ahead with full production claiming it has ample liquidity with $585M of cash on its balance sheet and has reached an agreement in principle with certain noteholders for a comprehensive restructuring.
In short, Whiting’s playbook is to buy more time hoping for a rebound in energy prices to bail it out.
WLL shares have jumped 15.1 percent after the bankruptcy announcement–probably an indication that investors believe the company has healthy odds at a comeback. Still, the shares have crashed an appalling 95 percent YTD, making the sector’s 46.9 percent YTD plunge appear tame in comparison. Whiting has announced that existing shareholders holders will only receive 3 percent of the equity in the reorganized company.
The bankruptcy is symptomatic of the sheer pain reverberating throughout the oil supply chainas per Bloomberg.
It also serves as a cautionary tale for the battered natural gas sector which is, sadly, following in the footsteps of Saudi Arabia, Russia and the oil sector by stubbornly refusing to lower production.
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