DJ Basin Producer Extraction Files for Bankruptcy Protection
The development marks the second-largest shale producer to file for Chapter 11 since the onset of the COVID-19 pandemic that sent crude prices reeling.
Extraction Oil & Gas announced today that it has filed for bankruptcy protection in a Delaware court which will allow it to reorganize its debt and gain a fresh start upon its exit. The Denver-based firm was expecting to be cash-flow-positive this year but instead finds itself dealing with significantly lower commodity prices as a result of the COVID-19 pandemic that has slowed the world’s largest economies.
Founded in 2012, Extraction said in earnings reports filed in May that it produced just over 38,500 B/D last quarter, primarily from Colorado’s Wattenberg field that lies within the Denver-Julesburg Basin. The firm also reported a net income of $9 million compared with a debt load nearing $1.5 billion.
That same month, Extraction withdrew its 2020 guidance as it missed an interest payment on bonds that do not expire until 2024, triggering a 30-day grace period that allowed the company time to mull its options.
“After months of liability management and careful analysis of our strategic options, we determined that a voluntary chapter 11 filing with key creditor support provides the best possible outcome for Extraction,” said Extraction’s Chief Executive Matt Owens in a statement.
Extraction has obtained a $125-million financing facility, $50 million of which is new debt. The remaining $75 million is considered a “roll up” into the firm’s existing revolver loans. The producer said the financing will provide it with sufficient liquidity during the chapter 11 process.
Hoping for a “swift exit” from bankruptcy, Extraction has also entered into a prearranged restructuring agreement that will deleverage the firm’s balance sheet in a debt-for-equity swap with its biggest noteholders. Such a deal has the potential to render the firm’s common stock worthless.
Extraction is the second-largest producer to file for bankruptcy since the onset of the global pandemic and a historic oil price war in March. In April, Denver-based Whiting Petroleum filed for bankruptcy in an effort to shed $2.2 billion in debts.
In the past 5 years, 226 North American oil and gas producers have filed for bankruptcy according to figures from a May report from the international corporate law firm Haynes and Boone. Texas led the way with 106 bankruptcies compared with 12 in Colorado and 18 for the whole of Canada.
The firm’s “Oil Patch Bankruptcy Monitor” said, “It is reasonable to expect that a substantial number of producers will continue to seek protection from creditors in bankruptcy even if oil prices recover over the next few months.”