California Resources Corp filed for bankruptcy, kicking off what could turn into the next wave of collapses among oil drillers and the businesses that depend on them.
The company joins more than 200 oil explorers that have filed for court protection since 2015, and more may be coming in a matter of weeks. Denbury Resources Inc and Noble Corp missed their July debt payments,
and Chaparral Energy asked lenders for more time, setting them on course for a possible default.
With oil prices hovering around $40 a barrel, the industry simply isn’t able to support debts taken on when prices were near peak levels. California’s biggest crude producer has been weighed down by massive borrowings since its spinoff from Occidental Petroleum Corp in late 2014, right at the start of the previous downturn in the crude market.
Low levels of cash and stricter state drilling regulations added to the pressure on California Resources, despite a $320 million investment from Tom Barrack Jr’s Colony Capital Inc last year.
The company said it owed more than 50,000 creditors about $6.1 billion, according to a Chapter 11 petition filed in federal court in Houston.
The bankruptcy is designed to reduce debt and other obligations by more than $5 billion, the company said in a statement. The proposed restructuring agreement is backed by about 84% of term-loan lenders who hold debt issued in 2017, and 51% of the company’s 2016 lenders. The company’s joint venture partner, Ares Management also backs the proposal.
To pay for the restructuring and to keep operating during the bankruptcy, the company will borrow $1 billion from a group of existing creditors, according to the statement.