An oil company that has been operating in Southwest Mississippi for nearly 20 years has filed for Chapter 11 bankruptcy, saying the downturn in oil prices during the COVID-19 pandemic and price war between Russia and Saudi Arabia has hurt its business.
Denbury Resources filed for Chapter 11 as a reorganization effort in the Southern District of Texas Houston Division on July 30, according to letters sent to local leaseholders and a press release from the company.
“Despite the debtor’s significant liability management efforts, the confluence of a worldwide reduction in oil demand due to the global COVID-19 pandemic and the price war among Russia, the Kingdom of Saudi Arabia, and other counties that are part of OPEC caused oil prices to plummet, significantly constraining liquidity for all independent oil and gas companies,” the filing read.
Denbury is an independent oil and natural gas producer. The focus of its operations is along the Gulf Coast and in the Rocky Mountain region, as there are vast oil fields in and around Utah. Between 1976 and 2013, the company produced over 13 million barrels of oil in addition to over 100 trillion cubic feet of natural gas and thousands of local jobs.
Denbury has 43 wells within McComb city limits, but just six of them are operational and actively injecting materials for oil and natural gas recovery. Those six are located around the city, including on Paige Drive, Highway 24, Old Liberty Road, Martin Road, Enterprise Road and Magnolia-Pisgah Road. The remaining 37 wells are either being held on standby, have been previously plugged and abandoned or never had a report submitted.
Numerous other wells dot the countryside in the McComb oil field west of the city and in the Little Creek and Lazy Creek oil fields in northern Pike County.
The company’s active wells involve an enhanced recovery process that requires the injection of carbon dioxide to pressurize oil deposits and send oil to the surface.
Denbury reported daily production numbers of about 56,000 barrels in 2019 across all of its holdings.
The McComb Field Units extracted oil and natural gas in full-force between October 2004 and June 2013, producing 90,392 barrels of crude over that period, in addition to over 11.3 million cubic feet of natural gas.
But on Friday, the company was officially delisted from the New York Stock Exchange and trading of its common stock was suspended.
And on Monday, Moody’s downgraded Denbury Resources’ probability of default rating, which gives investors insight into the company’s financial stability. the company had received a rating that’s assigned when a business fails to pay interest on a loan beyond a grace period. The new rating, Ca-PD, designates a company likely in or very near default on some of its long-term obligations.
There are many oil and gas companies that took a hard hit as coronavirus ground the world to a near-halt, sending the price of oil plunging lower than the world has seen in decades, and it appears Denbury Resources determined that the return on drilling in Pike County is not worth the expense.
Uncertainty in the global market likely played into the company’s decision, as price wars between Russia and Saudi Arabia, two of the world’s largest producers of petroleum products, increased supply tremendously, despite record-low demand for oil because of the outbreak of coronavirus.
Earlier this year, a barrell of oil was trading at a negative value.
“Denbury is particularly affected by these depressed oil prices, as oil accounted for 97% of the debtors’ production in 2019 and 98% of proved reserves as of December 31, 2019,” Denbury CEO Christian Kendall said in the filing.
Denbury is based in Texas and apparently reached an agreement with its creditors to reduce the size of the company’s note by over $2 billion dollars, the company announced Wednesday, signaling an intent to follow through on filing for bankruptcy reorganization.
Creditors will provide about $615 million in financing, which will allow Denbury Resources to operate normally, albeit under court supervision.
