A slump in oil prices and uncertainty in the industry due to the COVID-19 pandemic has consummated another shale driller. Chaparral Energy Inc. (NYSE:CHAP) is the latest oil drilling company to file for bankruptcy protection as it seeks to restructure its balance sheet and raise additional capital.
Chapparal Bankruptcy
This is the second time in four years that the shale driller has filed for bankruptcy protection opening the door for bondholders to get hold of the Oklahoma driller. Chaparral is estimated to have assets and liabilities valued to a tune of between $500 million and $1 billion.
Oklahoma-based Chapparal Energy first filed for bankruptcy in 2016 in the aftermath of crude plunging from above the $100 a barrel level. The uncertainty fueled by the COVID-19 pandemic has once again taken a toll on the company’s operation, triggering another round of bankruptcy protection.
The company has seen lenders cut its borrowing base from $325 million as of April to $175 million. The company is now left with $32 million in cash reserves that it intends to use to maintain minimal operations as the Chapter 11 restructuring continues.
The bankruptcy restructuring’s approval will result in the swapping of $300 million of unsecured notes into equity. Similarly, the company is poised to raise $175 million reserve-based exit facility and issue an additional $35 million notes.
Chapparal Energy joins a growing list of oil drillers that have fallen victim to COVID-19 pandemic taking a toll on the global economy. Bankruptcies in the energy industry have edged higher in recent months in the wake of oil demand slumping to record lows.
Oil Industry Uncertainty
While prices have bounced back after plunging below the negative mark, they are still low, for most oil drilling companies to break even in drilling operations. Lockdowns imposed to curb the spread of the coronavirus have only gone to suppress demand, conversely affecting oil companies’ operations.
Lenders have cut credit lines to the sector, making it extremely difficult for the likes of Chaparral Energy to sustain mining operations. California Resources Corp and Chesapeake have already felt the full force of drying credit lines in the sector, conversely opting to file for bankruptcies.
