Oil driller California Resources has filed for Chapter 11 bankruptcy, joining more than 20 US energy companies that have filed for bankruptcy this year. Most US energy companies are struggling to manage their finances amid the slump in energy markets as a result of the coronavirus pandemic.
Over 200 US oil explorers have filed for bankruptcy protection since 2015 and many more are expected to file for bankruptcies in the coming weeks. Last month, Chesapeake Energy, the second largest US natural gas producer, also filed for bankruptcy, one of the most high-profile energy company bankruptcy of 2020.
Noble Corp and Denbury Resources have also missed their July debt repayment while Chapparal Energy has asked lenders for more time. Energy prices have slumped this year and in April, the West Texas Intermediate (WTI) turned negative for the first time in history. While WTI has since risen swiftly to over $40 per barrel, it is still down 34% for the year. Crude oil prices are trading down almost 1% today after the OPEC+ block decided against extending the oil production cut.
US shale producers, who generally have higher production costs as compared to producers in the Middle East and Russia, are finding it hard to repay debt with WTI languishing near $40 per barrel.
California Resources was created as a spinoff from Occidental Petroleum in 2014. It inherited a net debt of over $6bn after the spinoff.
“We have consistently operated within cash flow, significantly reducing the outsized debt burden we inherited from Occidental Petroleum at our December 2014 spin-off. However, today’s unprecedented market conditions, including oversupply and reduced demand due to COVID-19, require that we further reduce our debt through a Chapter 11 process,” said California Resources chief executive Todd Stevens.
While California Resources received $320m financing from Tom Barrack Jr’s Colony Capital last year, the fund infusion could not offset strict drilling regulations and its weak balance sheet. The weak energy price environment further compounded the company’s woes.
California Resources owes $6.1bn spread to 50,000 creditors. It has received $1.1bn in debtor-in-possession financing and plans to eliminate $5bn in debt through restructuring. California Resources share was up 5.6% yesterday but has lost 87% of its value year to date.
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