DENVER Whiting Petroleum Corp expects its credit line to be cut by more than $1 billion in an early May loan review, Chief Executive Jim Volker said on Thursday, the latest industry fallout from low oil prices crimping margins and fueling massive spending cuts.
The semi-annual review of credit access for small- and medium-sized oil companies comes in the wake of a roughly 60 percent drop in crude prices since 2014. Because loans tends to be backed by the value of oil reserves, falling crude prices erode the underlying collateral and force a redetermination.
Whiting's credit line cut, if forecasts hold, would prove to be one of the biggest of this price downturn and be larger than executives themselves expected as recently as last month.
Whiting, the largest oil producer in North Dakota's Bakken shale formation, had $2.7 billion left on a loan revolver at the end of 2015.
Volker said on Thursday he expects Whiting will have "at least $1.5 billion" left on the loan after the redetermination, implying a cut of $1.2 billion.
As recently as late February, Volker said he expected a cut of no more than 30 percent, which would have been roughly $800 million.
"I'm sure we'll still have lots of liquidity after our next borrowing base redetermination," Volker said at the DUG Rockies conference in Denver.
A combination of bank lending and private equity financing has allowed many U.S. companies to keep producing crude even after funding in public capital markets began drying out last summer.
In Whiting's case, its strong position in North Dakota as well as Colorado, combined with hedges for nearly half of its 2016 production, likely worked in its favor as it met with lenders earlier this month.
Whiting last month slashed its 2016 capital budget by 80 percent and suspended fracking, steps cheered by Wall Street.
As part of that, Whiting plans to build a backlog of 168 wells this year that are drilled but not brought online, a step should help Whiting save $530 million this year, Volker said.
"Delaying these completions will afford us optionality to resume growth as oil prices begin to rebound," Volker said.
The company is nonetheless running four drilling rigs around the clock due to contractual commitments. Whiting would have to pay $49 million if it canceled the contracts.
Shares of Whiting fell 4.6 percent to $7.47 in afternoon trading.
(Reporting by Ernest Scheyder; Editing by Marguerita Choy)