Whiting Petroleum Corp (NYSE:WLL) Chief Executive Jim Volker said that the company anticipates its credit amount to be slashed by over $1 billion in a loan review taking place in May. This is a result of low oil prices reducing margins and leading to huge spending cuts.
In February, Whiting cut its 2016 capital budget by as much as 80% and temporarily halted fracking. These steps drew praise from Wall Street. Volker said Whiting intends to construct a backlog of 168 wells this year that are drilled, though not brought online. This move should enable Whiting to save $530 million in 2016. He added that delaying the completions will give the oil company the choice to restart growth as oil prices rise.
The semi-annual review of access to credit for small and medium oil companies is happening after an approximately 60% decrease in crude prices in the last two years. As loans are determined by the worth of oil reserves, dropping crude prices adversely affects the loan.
If predictions prove right, Whiting’s credit cut would be one of the largest of the current price downturn. It would also be bigger than executives’ anticipated just last month.
Whiting is the biggest oil producer in North Dakota’s Bakken shale region and had $2.7 billion remaining on a revolving loan at the end of last year. Volker expects Whiting will have a minimum $1.5 billion left on the loan after the re-evaluation suggesting a cut of $1.2 billion.
In late February, Volker had said he anticipated a cut of maximum 30% that would have been approximately $800 million. At the DUG Rockies conference in Denver, Volker said that he was certain that the company will have plenty of liquidity after its next redetermination of its borrowing base.
A mix of bank lending and private equity financing has let several American companies continue producing crude in spite of the decrease of funding in public capital markets.
Whiting’s good position in Colorado and North Dakota along with hedges for almost half of this year’s production gave it an advantage as the company met lenders at the beginning of this month.