First US shale oil company files for bankruptcy amid coronavirus, price war

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Whiting Petroleum Corporation, a Denver-based shale oil firm, said it was filing for Chapter 11 bankruptcy due to the “severe downturn in oil and gas prices” attributed to the Saudi-Russia price war and the coronavirus pandemic, according to a statement.

Whiting is the first US shale oil company to file for bankruptcy in the wake of a dramatic fall in oil prices over the last month. Brent crude futures are down around 67 percent since the start of the year, while WTI crude is down 62 percent.

“The company has more than $585 million of cash on its balance sheet and will continue to operate its business in the normal course without material disruption to its vendors, partners or employees. Whiting currently expects to have sufficient liquidity to meet its financial obligations during the restructuring without the need for additional financing,” the statement read.

Chapter 11 bankruptcy allows a company to reorganize its debts and continue operating and gradual pay down loans; as such the company will continue to pump crude throughout the restructuring process. The majority of the company’s reserves are located in the Bakken Formation in North Dakota.

Prices have collapsed since Russia failed to agree to a further oil output cut with the Organization of Petroleum Exporting Countries (OPEC) in early March, triggering an oil price war for market share.

Saudi Arabia later announced plans to hike output by 2.5 million barrels per day (bpd) to 12.3 million bpd, with other producers, including the UAE, announcing they too would increase production.

US shale oil firms have been among the first to suffer the low price environment, as unlike many other firms they cannot rely on state support. The companies have a significantly higher price at which they can pump oil out of the ground at between $43 to $55 per barrel – compared to Saudi Aramco, the cheapest producer, at just around $3 per barrel.

Russia’s motivation for breaking with the three-year OPEC+ arrangement, however, was likely aimed at US shale oil producers. Shale oil has come to dominate markets in recent years – the US moved to become the biggest exporter of crude in the world. However, shale oil firms are highly leveraged, and have high breakeven figures as a result to service debt.

“Russia’s decision to pull out of the OPEC+ agreement triggered the price collapse, and was squarely targeted at the shale sector given its current financial distress,” said MUFG Bank in a recent report.

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