Whiting Petroleum Corp (Whiting Petroleum) is an independent oil and gas company that develops, produces, acquires and explores crude oil, natural gas and natural gas liquids (NGL) in the Rocky Mountains region of the US. The outbreak of the Covid-19 pandemic has intensified the challenges Whiting Petroleum was confronted with, leading to a mediocre overall performance. As a result, in a matter of four months, stocks of Whiting Petroleum nose-dived from US$7 to less than US$1 and the company eventually filed for bankruptcy.
Owing to the weak economic outlook, uncertainty surrounding the COVID-19 outbreak, and supply overhang due to price war between OPEC and Russia, oil prices plunged below average US Shale breakeven price. As a result, the company was facing with declined revenue guidance, along with a 12% reduction in production guidance for 2020 and projected capital reductions as well. All these factors led to a negative sentiment and low confidence among investors over Whiting Petroleum’s annual and quarterly filings.
Even before the impact of COVID-19, Whiting Petroleum was grappling with multiple challenges such as lowered production due to harsh weather conditions; nearly 55% of unhedged risk exposure to oil price against production; higher average cost of production; a US$64 million in deficiency payments for shortfalls in delivering minimum committed volumes; and a decreased lending base under credit agreement, left the company with merely US$9 million in cash by Dec 2019.
Negative cash flow and poor liquidity ratios indicated the company’s distressed liquidity profile. In order to have working capital, the company had taken a loan of US$650m on its credit facility. It revised its capital budget in the range of US$400-US$435 million representing 30% decrease relative to previously announced capital budget to preserve liquidity and improve capital efficiency.
As liquidity crisis was looming large, the company’s obligation of paying US$472 million of senior notes under companies contractual obligations maturing within a year, were expected to increase to almost US$1 billion in the next two. Additionally, downgraded credit rating hampered its ability to refinance under credit facility. Inability to comply with agreed debt covenants and the ability to refinance its debt were deemed unsustainable, restricting the company from incurring additional indebtedness. All these circumstances have led the company file for restructuring under Chapter 11 on April 01, 2020.