Wyoming-focused Ultra Petroleum Corp. is seeking Chapter 11 bankruptcy protection for the second time in four years to eliminate debt exacerbated by low prices and stinging demand destruction from Covid-19.
Ultra joins other U.S. operators that have sought bankruptcy protection since March, which now include Bakken Shale heavyweight Whiting Petroleum Corp., Diamond Offshore Drilling Inc., Gavilan Resources LLC, Freedom Oil & Gas Co. and Hornbeck Offshore Services Inc.
Englewood, CO-based Ultra, which plies its expertise in the natural gas-rich Pinedale Anticline of Wyoming, in 2016 sought voluntary bankruptcy protection and emerged a year later. However, last summer Ultra began trading over-the-counter after deciding against attempting to regain compliance with Nasdaq listing standards.
“After several months of liability management efforts and careful consideration of how best to navigate a challenging low commodity price environment and our debt levels, Ultra’s board of directors determined that a voluntary filing for Chapter 11 reorganization provides the best outcome for the entity,” CEO Brad Johnson said. “This financial restructuring will result in an enterprise with very little debt, good liquidity and significant free cash flow that is underpinned by a large-scale, low-cost base of natural gas and condensate production.”
Ultra “continued to stay focused” during the first quarter, Johnson said, as employees coped with the Covid-19 pandemic.
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Ultra has a commitment for financing of up to $25 million, which when combined with cash on hand and normal operating cash flow should allow it to “maintain normal operations and meet ongoing financial commitments throughout the Chapter 11 restructuring period.”
Through restructuring, set to be finalized within the next three months, Ultra plans to eliminate $2 billion in debt from the balance sheet and deleverage the capital structure.
Eagle Ford Shale-focused Gavilan also is seeking Chapter 11 protection and has put its assets on the block. The Houston exploration and production (E&P) company is sponsored by Blackstone Group Inc.
In the bankruptcy filing, Gavilan CEO David E. Roberts Jr. blamed the “precipitous decline in oil prices from the combined effect of the Covid-19 pandemic and the flooding of oil markets by warring international producers,” led by the Organization of the Petroleum Exporting Countries and Russia.
The financial difficulties also stem from an “increasingly unworkable relationship” with fellow Eagle Ford operator Sanchez Energy Corp., which sought bankruptcy protection last year. Sanchez and Gavilan for two years have fought over the rights to South Texas acreage they jointly acquired in early 2017 from Anadarko Petroleum Corp.
In its recent Chapter 11 filing, Houston-based Freedom Oil, formerly known as Maverick Drilling Services, said it was unable to pay more than $10 million of debt with revenue sharply declining.
Freedom, which has about 2,682 acres of mineral leases in the Eagle Ford, with 18 producing wells, plans to sell its assets to Australia’s Sendero Resources Inc. pending court approval.
Covington, LA-based Hornbeck also is seeking Chapter 11 protection under a prepackaged plan. The oilfield services provider offers marine transportation services.
Hornbeck expects to operate in the ordinary course of business “without disruption to its customers, vendors and workforce. The company has access to a $75 million debtor-in-possession term loan facility and may support the business using cash on hand and cash generated by operations.
“The Covid-19 pandemic and the recent drop in oil prices due to an acute global supply-demand imbalance have significantly impacted the industries we serve, making an already challenging environment for the company even more difficult,” said CEO Todd M. Hornbeck. “This consensual approach to reorganization and recapitalization is in the best long-term interest of our company, as it will enable us to take advantage of new opportunities while continuing to support our customers, retain our employees and pay our vendors."
In an analysis issued Wednesday, Rystad Energy estimated that even at a West Texas Intermediate (WTI) oil price of $30/bbl, more U.S. E&Ps and support services face the prospect of restructuring.
“To begin with, our analysis has found that even at an average WTI price of $30 this year, about 73 E&Ps in the U.S. may have to file for Chapter 11 bankruptcy protection, with 170 more following in 2021,” analysts said. “The number of bankruptcies could climb even more in lower price scenarios.”