Extraction Oil & Gas (NASDAQ:XOG) has filed for Chapter 11 bankruptcy. In doing so, the energy company joins a growing list of its peers that have filed for bankruptcy this year.

Extraction Oil & Gas has already entered into a restructuring support agreement with several of its unsecured noteholders. This plan will enable the company to significantly reduce its outstanding debt via a debt-for-equity swap. As a result, these creditors would control a majority of the company's equity following the restructuring. The company hopes to use the chapter 11 process to complete a comprehensive restructuring that will include other debtholders so that it can quickly exit bankruptcy in a stronger financial position. That outcome could see its creditors taking over full control of Extraction's equity, which would render its current common stock worthless. 

A person in a suit holding papers with Chapter 11 Bankruptcy on them.

Image source: Getty Images.

Several factors contributed to Extraction's need to restructure its balance sheet through bankruptcy. A major catalyst was the significant decline in oil prices earlier this year. Those weaker prices led the company's banks to reduce the borrowing base on its revolving credit facility from $950 million to $650 million. That had a significant impact on Extraction's liquidity since it had already drawn $470 million on that facility. 

With its liquidity drying up, Extraction Oil & Gas opted to skip a $14.8 million interest payment last month to buy more time to address its financial issues. However, with the 30-day grace period ending over the weekend, Extraction ran out of time.  

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