Embattled Energy Companies Snub Creditors to Conserve Cash
April 03 2020 - 3:55PM
Dow Jones News
By Alexander Gladstone and Andrew Scurria
Some distressed energy companies are wasting no time in skipping
debt payments as their business models come under siege, conserving
precious cash as they plot ways to survive a historic fall in crude
prices.
Sable Permian Resources LLC missed a coupon payment due
Wednesday to bondholders holding securities that mature in 2024,
according to people familiar with the matter. Blackstone Group
Inc.'s Gavilan Resources LLC also skipped a payment to creditors,
other people familiar with the matter said.
Representatives for Sable and Gavilan didn't respond to requests
for comment.
Preserving liquidity is the top priority in the oil patch now
that companies are bleeding cash after the collapse in crude
prices. The main oil benchmarks have lost roughly half their value
so far this year, despite rebounding this week on hopes of a truce
in the Saudi-Russian price war that flooded global crude
markets.
Oil producers and service contractors have been drawing down
their credit lines, slashing budgets and idling equipment to save
money. Banks and bondholders are bracing for missed debt payments
to come next.
After drawing down $650 million on a credit facility, Whiting
Petroleum Corp. filed for bankruptcy on Wednesday rather than pay
$262 million that came due to creditors. The company said it
couldn't take the risk of paying when its bank credit was likely to
be reduced.
Gavilan, which Blackstone formed in 2017, operates in the Eagle
Ford shale in South Texas. The company is preparing for a debt
restructuring strategy that could involve filing for chapter 11
protection. Lenders have engaged the law firm Fried Frank Harris
Shriver & Jacobson LLP and investment bank Houlihan Lokey Inc.
to advise on negotiations, people familiar with the matter said.
Gavilan's advisers include investment bank Lazard Ltd. and law firm
Weil Gotshal & Manges LLP.
Sable, founded by the late shale drilling pioneer Aubrey
McClendon, drills in the Permian Basin in West Texas. The company,
backed by OnyxPoint Global Management and Energy & Minerals
Group, was able to restructure about $2.1 billion of debt in
October in an out-of-court deal. But five months later, investors
who received new bonds as part of the restructuring deal aren't
being paid interest.
Several other distressed energy companies, however, did make
good on their debt service obligations this week, averting an
imminent restructuring. Both Callon Petroleum Corp. and Chesapeake
Energy Corp. paid bond coupons that were due on Wednesday.
Write to Alexander Gladstone at alexander.gladstone@wsj.com and
Andrew Scurria at Andrew.Scurria@wsj.com
(END) Dow Jones Newswires
April 03, 2020 16:40 ET (20:40 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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