A pump jack works on a well site belonging to Whiting Petroleum near Williston, N.D.
Photo: Elliott Woods for the Wall Street JournalU.S. shale drillers are poised to be among the biggest losers in the oil-price war stoked by Russia and Saudi Arabia that has sent global prices crashing.
Dozens of debt-addled companies, including Chesapeake Energy Corp. and Whiting Petroleum Corp., were already facing financial difficulties even before U.S. benchmark prices plummeted 25% to $31.13 a barrel Monday, the largest drop since 1991.
Now many of the shale companies that led the U.S. to become the world’s top oil and gas producer are in a fight for survival. But unlike the 2014 price plunge, Wall Street—down on the industry due to poor returns—isn’t primed to offer a helping hand.
Companies facing debt defaults will likely have to cut back on drilling and slash jobs if low prices persist for any length of time, analysts and industry officials say, and even that might not be enough for many to avoid bankruptcy.
“Probably 50% of the public E&Ps will go bankrupt over the next two years,” said Pioneer Natural Resources Co. Chief Executive Scott Sheffield in an interview Monday, referring to shale exploration-and-production companies.
Pioneer, one of the leading producers in the Permian Basin of Texas and New Mexico, is running a series of models to decide next steps and is likely to plan for its worst-case scenario, which assumes oil prices remain low for two years, Mr. Sheffield said. He added that he thinks Pioneer is prepared for the downturn.
The company’s shares fell about 37% Monday afternoon.
West Texas producers Diamondback Energy Inc. and Parsley Energy Inc. pledged Monday morning to curb activity in response to the oil-price decline.
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Diamondback, whose shares fell nearly 45% Monday, said it would reduce drilling “immediately,” with plans to cut three of nine crews that bring wells into production and idle three rigs over the next few months.
Parsley said it reduced its fracking crews to three on Friday, from an average of five earlier in the year, and plans to drop three of its 15 drilling rigs “as soon as practicable.”
The company said it expects to still be able to live within its means at oil prices of $30 to $35 a barrel. Its shares fell about 39% Monday.
“We must act swiftly with an aim to preserve a stable free cash flow profile and remain committed to doing whatever is necessary to protect our balance sheet in the weeks and months ahead,” Parsley Chief Executive Matt Gallagher said.
Among larger producers, one of the hardest hit was Occidental Petroleum Corp., whose shares dropped about 52% Monday. Occidental’s recent acquisition of Anadarko Petroleum Corp., a rival nearly its own size, has strained the company’s balance sheet.
Chief Executive Vicki Hollub told investors last month that the company was prepared to cut spending if prices deteriorated.
The price collapse heavily hit even the largest and best-funded American drillers, with shares of Exxon Mobil Corp. falling about 12% and Chevron Corp. roughly 15%.
Exxon, which had previously announced plans to cut rigs in the Permian Basin of Texas and New Mexico by 20% this year, is “evaluating the pace of near-term development activities in response to market conditions,” said Ashley Alemayehu, a company spokeswoman.
BP PLC’s shares fell by roughly 19% on Monday, while Royal Dutch Shell PLC was down 17% and France’s Total SA dropped 18%.
If the rift keeps crude prices down, it would slam a shale industry that has already struggled to generate free cash flow at higher prices while paying off debt. Oil hedges used to protect cash flows weren’t effective at current prices, traders said, citing industry data.
So far, this year’s oil-market crash has weighed heavily on U.S. producers with larger debt loads. Shares of Chesapeake Energy, a once-highflying company and pioneer of the shale revolution, fell to as low as 12 cents Monday morning, from 22 cents Friday, but later closed at 16 cents.
Several companies that primarily drill for natural gas outperformed the sector as oil producers said they would curb activity, meaning they also would produce less gas as a byproduct.
Whiting Petroleum Corp. shares fell about 40% on Monday, and was down around 90% from its 2020 peak in January, amid concerns about the company’s $1 billion in debt maturities in 2020 and 2021.
Chesapeake declined to comment. Whiting didn’t respond to a request for comment.
The rout couldn’t have come at a worse time. Investors have pulled away from the U.S. energy sector after years of poor shareholder returns, which have lagged behind the S&P 500 index over the past decade. Activists have demanded that companies make free cash flow a higher priority than increasing output, and that smaller companies try to combine to strengthen their balance sheets.
Overhead “at those companies is eating them alive. Checkerboard acreage makes them inefficient,” said John D. Arnold, a billionaire investor, philanthropist and former gas trader, in an interview last week. “No one wants to put up the cash, so the industry seems to be frozen.”
In 2016, during a previous downturn, investors poured billions into cash-strapped U.S. firms through equity offerings and private funds. The Organization of the Petroleum Exporting Countries, Russia and other nations also agreed to curtail output to support prices, which also subsidized higher-cost shale drilling.
But the OPEC-Russia alliance fractured on Friday when the countries failed to come up with a new agreement to curtail production, as the coronavirus threatened to severely curtail demand, leading to Monday’s price collapse.
The International Energy Agency, a Paris-based energy adviser, estimated Monday that global oil demand will decline by 90,000 barrels a day in 2020, the first drop since 2009.
“Bankruptcies will be more substantial and have a bigger impact on supply than they did back then,” said Shawn Reynolds, a portfolio manager at asset firm VanEck. “There’s a dozen or two dozen companies that can survive at $40.”
—David Hodari
contributed to this article.
Write to Rebecca Elliott at rebecca.elliott@wsj.com
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