Whiting Petroleum Becomes First US Shale Casualty Of Oil War

By Glenn Dyer | More Articles by Glenn Dyer

Shale oil producer Whiting Petroleum Corp has gone broke, becoming the first casualty of the Russia-Saudi Arabia oil price and volume war that has seen prices for US crude slump 50% in the past month to $US20 a barrel.

The producer (which is smaller than Woodside Petroleum in Australia) said it had filed for Chapter 11 bankruptcy after reaching an agreement with creditors to cut its debt by about $US2.2 billion through an exchange of some of its notes for 97% of new equity.

Existing shareholders will be effectively wiped out with them retaining a 3% stake in the restructured company.

The news came on the first day of the new month and quarter after US and Brent oil futures tumbled 66% in the three months to March 31.

April 1 saw more of the recent weakness.

Brent crude fell while US futures dipped, rose and dipped again on Wednesday after US oil inventories rose last week by the most since 2016 and petrol demand fell sharply due to the coronavirus pandemic.

Crude oil stocks surged by 13.8 million barrels in the week to March 27 to 469.2 million barrels, according to the weekly report from the Energy Information Administration.

That was the biggest one-week rise since 2016, and analysts expect stocks to keep rising as refineries cut output and petrol demand falls. Stocks of petrol jumped by 7.5 million barrels as drivers use their cars less and refineries continue to churn out petrol ahead of the summer driving season. That won’t be happening in 2020.

May West Texas Intermediate oil fell 17 cents, or 0.8%, to settle $US20.31 a barrel in New York after tapping an intraday low of $US19.90. June Brent crude futures fell $US1.11, or 4.2%, to $US25.24 a barrel in Europe.

Whiting, once the largest oil producer in North Dakota’s Bakken region, has seen its market capitalisation shrink to just $US61.5 million from as much as $US15 billion at its peak in 2011 when the shale fracking sector (for gas, then oil) first emerged.

The company had $US2.8 billion in debt as of December 31 and more than $US585 million in cash on its balance sheet. That’s clearly no longer the case, hence the bankruptcy.

Whiting shares fell 44% on Wednesday to 37 cents.

Whiting, which was expected to produce about 42 million barrels of oil equivalent in 2020, said it would continue to operate its business without too much 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 extra financing

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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