Oil demand skyrocketed last year due to the COVID-19 outbreak. The pandemic has sent crude prices plummeting, wreaking havoc on the oil industry. The slowdown sparked a wave of bankruptcies across the oil sector, as financially troubled companies had no other option to restructure their heavy debt.
While market conditions have improved in recent months, several oil stocks remain on fragile foundations. We probably haven’t seen the end of the current wave of bankruptcies. Here are some energy stocks that could file for bankruptcy before the end of the year.
The next domino to fall?
Almost all offshore drilling industry filed for bankruptcy last year. One of the few companies still standing is Transocean (NYSE: RIG). However, the company is on the brink, given its short-term financial commitments.
On the one hand, Transocean has $1.7 billion in cash and short-term investments as well as $1.3 billion in available credit. Meanwhile, thanks to its large backlog, it expects to generate between $900 million and $1.1 billion in operating cash flow over the next two years. However, Transocean has capital expenditure needs of $1.7 billion and debt of $1.5 billion maturing until the end of next year. It is on track to deplete most of its cash. As the offshore driller considers various options – like debt swaps and new financing secured on some of its vessels – it may have no choice but to file for bankruptcy to restructure its liabilities and earn some more headroom. of maneuver.
Fight hard to stay afloat
Callon Oil (NYSE: CPE) worked feverishly to shore up its financial profile amid turbulent market conditions. The oil producer had some success increasing its cash position to nearly $600 million at the end of the third quarter by reducing its net debt by $160 through asset sales and a debt swap.
However, the company still has a difficult slope to climb. It has borrowed about $1 billion from its credit facility and has total long-term debt of $3.2 billion. This is worrying, since its banks recently reduced its borrowing capacity to $1.6 billion due to low oil prices.
If crude cooperates, Callon Petroleum could continue to reduce debt and stay afloat. However, if prices fall again this year, the company may have no choice but to file for bankruptcy to restructure its debt.
Its cash is drying up
Centennial Resource Development (NASDAQ: CDEV) is in a boat similar to Callon Petroleum. The oil producer is struggling to stay afloat in the turbulent oil market conditions. The company appeared to be entering 2020 in decent financial shape. He had $10 million in cash, only borrowed $175 million from his $800 million credit facility, and had $900 million of other debt outstanding, giving him $634 million. of cash.
However, the fall in crude prices had a significant impact on its financial situation. It burned through its cash while its banks reduced its borrowing base to $700 million. As a result, it ended the third quarter with just $314 million in cash.
If oil prices cooperate, Centennial Resource Development should be able to generate free cash flow, giving it the funds needed to reduce its debt. Otherwise, its cash could run out, which would likely force it to file for bankruptcy.
High Risk Oil Stocks
Transocean, Callon Petroleum and Centennial Resource Development are all on thin financial ice. They run a high risk of filing for bankruptcy if oil prices fall again. Meanwhile, even if they survive the year, their weak financial profiles could cause their stocks to underperform their rivals. Investors should avoid these financially troubled oil stocks.
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