California Resources, the largest oil driller in the state, has filed for Chapter 11 bankruptcy protection, becoming the latest casualty of an oil price crash that coincided with the coronavirus pandemic that wiped out as much as 20 million bpd of demand in April alone.
In a press release, the company said it had agreed a restructuring plan with most of its shareholders, which will see its debt pile significantly reduced, by about $5 billion, “enabling the Company to operate safely through the current downturn in commodity prices and establishing a solid financial foundation to enhance future value creation.”
The U.S. oil industry, especially shale, has been hit particularly hard by the crisis, with cash shortages and high debt levels reducing companies’ flexibility during the downturn.
During the second quarter of the year alone, more than 18 oil and gas companies in the United States filed for bankruptcy, according to data from Haynes and Boone. Since the start of the year, as many as 41 companies filed for bankruptcy.
Rystad Energy in April warned that as many as 530 U.S. oil companies could file for bankruptcy protection if oil had stayed at $20 per barrel. Prices have improved since then, but bankruptcies in the U.S. oil and gas sector are set to continue even at the current oil price of some $40 a barrel for West Texas Intermediate, according to analysts.
The problem is unsustainable debt levels that resulted in a record number of companies from the industry defaulting on interest payments on their junk-rated bonds last year, when prices were substantially higher. At the same time, banks have grown markedly cold to the industry as it has failed to deliver on production promises. Credit lines have been cut, leaving even less wiggle room for the most troubled in the field.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.