What happened
Oil stocks tumbled on Tuesday, with several slumping more than 10% by noon EDT. While oil prices were relatively calm -- WTI was roughly flat while Brent was down slightly -- rumors were swirling in the industry that two deeply indebted producers were about to file for bankruptcy despite the recent run-up in crude prices.
Those reports weighed on financially challenged producers today. Leading the downward spiral were Occidental Petroleum (OXY 5.42%), Callon Petroleum (CPE +0.00%), Gulfport Energy (GPOR +0.00%), Centennial Resource Development (CDEV 4.90%), Oasis Petroleum (OAS +0.00%), and Denbury Resources (DNR +0.00%).
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So what
The Wall Street Journal reported yesterday that troubled California Resources (CRC +0.00%) could file for bankruptcy as soon as next week. Meanwhile, Bloomberg made a similar report on Chesapeake Energy (CHK +0.00%). That news deflated speculators who bet that troubled drillers might make it through this downturn thanks to the recent spike in oil prices.
With those two companies apparently on their way to joining a growing list of oil companies in bankruptcy, it's renewing concerns that more might need to file in the coming months to restructure their debt. Denbury Resources has already warned investors that it might not be able to continue as a going concern. The company wrote in its annual report that it has a "substantially diminished" ability to repay, refinance, or restructure the $584.7 million of its debt that will mature next year.
Occidental Petroleum also has a mountain of debt coming due next year. However, the company does believe it can refinance some of that because investors seem more willing to continue providing capital.
However, creditors haven't been so gracious to Gulfport Energy, Oasis Petroleum, Centennial Resources, or Callon Petroleum. Gulfport's banks reduced its credit facility's borrowing capacity from $1 billion to $700 million, which cut its liquidity in half to just $269 million. The company already hired advisors to potentially restructure its debt, which it might need to do via bankruptcy.
Meanwhile, Oasis' banks slashed its borrowing base from $1.3 billion to $625 million, with additional reductions scheduled for June and July that would push it down to $600 million. The company had $522 million of borrowings on that facility at the end of the first quarter, leaving it with a dangerously low level of liquidity. Another reduction would likely force it to file for bankruptcy.
Centennial Resource Development's banks also put pressure on its financial profile by cutting its borrowing base from $1.2 billion to $700 million, shaving its liquidity down to $468 million. The company had hoped to replenish its financial resources by selling its water infrastructure for $225 million, but that deal fell through due to challenging market conditions. If Centennial doesn't find another buyer and its banks cut its credit rating again, it might need to restructure its debt in bankruptcy.
Finally, Callon Petroleum also hired advisors to help restructure its debt. Unfortunately, they haven't been successful in working with bondholders. Callon offered a debt exchange to help reduce its outstanding borrowings and push out some of its nearest-term maturities, but it has since terminated that offer. On top of that, bankers cut its borrowing base from $2 billion to $1.7 billion. That's a concern, since it has drawn $1.35 billion on that facility. Given its debt issues, Callon is another bankruptcy candidate.
Now what
Oil market speculators got a healthy dose of reality over the past 24 hours as reports surfaced that a couple of financially challenged drillers are about to file for bankruptcy. These rumors fueled worries that more oil companies might not make it out of this downturn without also having to go through the restructuring process.
