Midstates Petroleum Co. raised doubts about its ability to stay in operation, saying it may necessarily seek Chapter 11 bankruptcy protection. The company added that filing bankruptcy protection may provide the most expeditious manner in solving its failing capital structure.
According to Macro Axis, Midstates Petroleum's probability of bankruptcy has a Z-score of 65 percent. The web-based personalized portfolio management service said that this is much higher than that of the sector and significantly higher than that of Probability of Bankruptcy Industry.
Midstates Petroleum said in a statement that they have substantial debt obligations and may not be able to maintain sufficient liquidity throughout 2016. More than 70 percent fall in oil prices has dwindled the oil market and forced many gas and oil producers to file for bankruptcy since mid-June.
The Wall Street Journal reported that struggling oil and gas producers are maxing out revolving credit lines, which is typically used to cover short-term funding gaps. Linn Energy, SandRudge Energy, and Midstates Petroleum were among the companies who drew down the full balance of their revolving credit lines.
There are currently 40 oil and gas companies across the globe who have filed for bankruptcy since oil prices began to decline in 2014, reports Reuters. Deloitte, a consulting firm, said that up to a third of all energy producers may fail unless prices are recovered.
On Wednesday, Midstates Petroleum said they already tapped legal and financial specialists to analyze strategic alternatives to address its capital structure and liquidity. As of February 26, Oklahoma-based gas producer Midstates had a total debt of about $1.8 billion - excluding outstanding borrowings under its credit facility. And as of December 31, Midstates Petroleum had a cash and cash equivalents of an estimated $81 million.
Several oil and gas companies are left with little choice, but to start making the steep cost cuts they have been avoiding until now as crude oil prices decline to $25 a barrel.
