Oasis Petroleum files for Chapter 11, adds to US shale fallout from price slump

Houston — Oasis Petroleum -- a producer of around 36,000 b/d of crude in the Williston and Delaware Basins -- filed for Chapter 11 bankruptcy protection on Sept. 30, a further sign of the plight of the debt-ravaged US shale industry hit by low oil prices and weak demand.

The mid-cap shale producer said it is seeking court-aided restructuring as it wrestles to strengthen its balance sheet, significantly reduce its debt, boost financial flexibility and put the business on sound footing longer term.

Oasis also said it expects to continue its normal operations through the proceeding and meet its obligations to vendors, making payments to royalty owners, surface owners and working interest owners going forward.

The company said it intends to reduce its total indebtedness by $1.8 billion, representing 100% of its senior unsecured notes and senior unsecured convertible notes.

"Due to historically low global energy demand and commodity prices, we determined that it is best for Oasis Petroleum to take decisive action to strengthen our liquidity and overcome the headwinds now challenging both our company and industry," Chairman and CEO Thomas B. Nusz said.

Oasis was on a list released Sept. 25 by S&P Global Ratings as a recent one of 37 oil and gas operators that had defaulted on obligations in 2020. The company missed an interest payment due in mid-September.

Oil, gas defaults so far this year nearly twice that of 2019

"Oil and gas defaults this year are nearly double the full-year 2019 tally," S&P Global Ratings said, adding nearly 70% of these are from the US where oil demand and crude prices plunged in 2020 due to excess oil supplies and the coronavirus pandemic.

Oil prices dropped from around $46/b in early March 2020 to about half that level by the end of the month and even into the teens later. Prices regained some footing in late June, rising near and later above $40/b.

Oil prices on Sept. 30 were hovering just below $40/b in US morning NYMEX trading.

On Sept. 18, Oasis revealed its default in a public statement, but said it "has sufficient liquidity and continues to operate its business in the normal course."

S&P Global Ratings also said it expects the number of oil and gas defaults "will continue to climb, given that the sector's negative bias (the proportion of issuers with negative outlooks or ratings on CreditWatch negative) remains elevated, especially for the most vulnerable issuers (rated 'B-' and below)."

Oasis' Chapter 11 filing represents a growing trend of bankruptcies by larger public companies.

Rivals Chesapeake and Chaparral Energy filed for Chapter 11 earlier this year, while Whiting Petroleum emerged from Chapter 11 and completed its financial restructuring recently.

So far this year, there have been 36 bankruptcy filings by North American upstream companies, according to Haynes and Boone's Oil Patch Bankruptcy Monitor, including 18 in the second quarter and 13 so far in Q3. That compares with a total of 42 in 2019; 28 in 2018; 24 in 2017; 70 in 2016 and 42 in 2015.

Those earlier bankruptcies also stemmed from lower oil prices which had dropped steeply in late 2014 from more than $100/b earlier that year to about half that level by the end of the year.

More bankruptcies expected before year-end

Haynes and Boone, a global law firm prominent in energy law, bankruptcies and restructurings, said in releasing its most recent Monitor in mid-September that it is "reasonable" to expect a "substantial" number of producers would continue to seek protection from creditors in bankruptcy before year-end.

"In July and August, 13 producers filed, which combined with the rest of the filings this year, represents a 62% increase over this time last year," the firm said. "The total secured debt involved in 2020 producer bankruptcies to date already exceeds the total amount of secured debt for all producer filings in 2016. And in 2016, the producers had a much higher level of unsecured debt than what has been reported in 2020."

Upstream investment began to plummet in March because of the pandemic as exploration and production companies slashed upstream budgets and reduced drilling to a minimum, causing the US oil and gas rig count to plummet more than 65% from its early March number of around 835 units.

US crude supplies will not return to 2019 levels until late 2023 or early 2024, according to S&P Global Platts Analytics, as oil prices hover around $40/b and are only likely to tick up slowly into next year according to latest forecasts. US production dropped to roughly 10.5 million b/d during the coronavirus pandemic from more than 12 million b/d as demand for oil products collapsed.

"Even after this period, weaker demand and price projections have reduced the outlook for US shale by an average of 900,000 b/d over 2025-40," Platts Analytics said.