The ongoing oil price slump that has seen U.S. oil futures crash into negative prices, has ensnared yet another company after Diamond Offshore Drilling filed for bankruptcy.
In a Chapter 11 petition filed at the U.S. Bankruptcy Court for the Southern District of Texas (Houston), the rig contractor controlled by Loews Corp. L said operating conditions had worsened “precipitously in recent months.”
Diamond owns rigs that can drill in water over two miles deep. But the current slump in prices, triggered by the collapse of OPEC+ and the subsequent crash in oil demand in the wake of the coronavirus or Covid-19 pandemic, has hammered oil and gas exploration at sea.
Offshore oil exploration and production (E&P) is often the most expensive industry drilling activity and not economically viable in many global production zones below $30 per barrel crude prices, a level global benchmark futures are currently well short of. Recent declines have seen Brent and WTI futures trade 60% and 80% lower since the start of the year.
The wells also take much longer to drill and develop compared to U.S. onshore shale wells and competition among rig contractors is fierce when it comes to bagging business.
In its Bankruptcy Court filing (Chapter 11 petition case reference: 20-32307), Diamond said it has $5.8 billion of assets and $2.6 billion of debt, referencing fiscal Q4 2019 data. The document also said the company has around $434.9 million of cash on hand.
Depending on how the restructuring and pending bankruptcy unfolds, up to 2,500 jobs could be at risk at Diamond. It follows shale E&P firm Whiting Petroleum into bankruptcy, which filed its Chapter 11 petition on April 1 after its stock slumped 91% over the previous quarter. Whiting largely operated in Bakken and Three Forks Shale, along with substantial operations in its home-patch – the Denver-Julesburg Basin.
There is more pain to follow with several U.S. and global E&P companies announcing deep operating and capital expenditure cuts. Oil majors such as ExxonMobil XOM (NYSE:XOM), Chevron CVX (NYSE:CVX), Shell (LON:RDSB) and BP (LON:BP) are all evaluating their spending, with multi-billion dollar projects likely to be in limbo. Beleaguered mid-tier independents are also facing pressures of their own with Occidental Petroleum OXY (NYSE:OXY) announcing dividend cuts of over 85%.
The cost-cutters’ ranks are being swelled by independents like Apache Corporation APA (NYSE:APA), Devon Energy DVN (NYSE:DVN) and Murphy Oil MUR (NYSE:MUR), all of which have announced dramatic capital budget cuts of 30% or more, even before Big Oil got there.