Oil and gas producer Energy XXI Ltd. filed for bankruptcy protection on Thursday to reduce a debt load that it has been unable to service due to the plunge in oil prices.
The Houston-based company, one of the largest shallow-water drillers in the Gulf of Mexico, said it had agreed to a restructuring plan with lenders that will take more than $2.8 billion off its balance sheet, leaving it with only a $377.7 million revolving credit line. Energy XXI’s banks recently reduced the credit line from $500 million.
“Today’s announcement reflects the next step in our efforts to respond proactively to the challenging market environment,” CEO John Schiller said in a news release.
The company, he said, had determined that implementing the restructuring through the Chapter 11 process was “the best course of action for Energy XXI and all our stakeholders. We are confident that we are taking the right steps to provide Energy XXI a solid foundation for a successful future.”
The filing “underscores the stress oil and gas companies face as oil prices hover around $40 a barrel, down from above $100 almost two years ago,” Reuters said. “[Energy XXI’s] break-even is at $60 and above.” More than 50 North American energy companies have entered bankruptcy since the price slide began.
Energy XXI has grown through acquisitions including the $2.3 billion of EPL Oil & Gas in 2014, which made it the largest publicly traded independent operator on the Gulf of Mexico shelf. Since last June, it had bought back more than $1.7 billion in debt to reduce its interest expenses but last month it was late in making an interest payment on the EPL transaction.
“Fitch believes that the current debt load remains unsustainable” at current oil prices, the rating agency said in February in downgrading Energy XXI to a “C” rating.
The company said Thursday it believes it has sufficient liquidity, including approximately $180 million of cash on hand as of March 31, to continue operations during the restructuring. “Our production is on track as we continue to focus our operations on low-risk, high-return projects,” Schiller said.