- California Resources Corp. filed for bankruptcy with a plan to hand ownership to lenders, kicking off what could turn into the next wave of collapses among oil drillers and the businesses that depend on them.
- Under a proposal the company negotiated with senior lenders as part of its bankruptcy planning, shareholders will be wiped out, and investors holding the company’s $1.3 billion, 2017 loan will get 93% of a reorganized California Resources. Lower-ranking creditors will share 7% of the new company if they vote in favor of the proposal.
- The plan must be approved by U.S. Bankruptcy Judge David R Jones after lower-ranking creditors have a chance to object.
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 Inc. 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. About $5 billion of those liabilities are funded debt that may be reduced as part of the reorganization.