GlobalData assessed a small sample of US companies, Chesapeake Energy (CHK), Whiting Petroleum Corporation (WLL), Oasis Petroleum (OAS), Extraction Oil and Gas (XOG), Sundance Energy (SNDE), Amplify Energy (AMPY), under financial or operational distress during the current pandemic to assess the economic outlook.
The group consists of operators that have experienced a steep drop in share price of at least 85% from their respective level in January 2020. The financial standing and high debt levels represent a higher risk to solvency of these companies, since their operational metrics are on par with peer companies.
The majority of these operators are competitive with their peers within the same play in terms of operational performance. However, their financial standing pose a huge threat as investors are not convinced that these operators would be able to fulfill their obligation to pay off their debts in short term due to poor liquidity profile.
Per GlobalData analysis, the group of companies has an average breakeven oil price of $49.12 per barrel (bbl) and a breakeven gas price of $2.57 per thousand cubic feet (mcf) across all plays. Given the current environment, these price levels pose a challenge to generate free cash flow to refinance their debts.
Whiting Petroleum, Unit Corporation, Ultra Petroleum are some examples of the companies that fell into the initial wave of bankruptcies, which are expected to occur throughout 2020. GlobalData analysis indicates that Chesapeake Energy, Extraction Oil and Gas and Amplify Energy are operators at most risk financially during the current crisis. However, Oasis Petroleum and Sundance Energy still have a fighting chance to convince the investors of their ability to operate more efficiently, and with strong hedged position generate free cash flow to meet their short-term debt obligation and refinance their debt.