California Resources Corp. filed for bankruptcy, kicking off what could turn into the next wave of collapses among oil drillers and the businesses that depend on them.

The company joins more than 200 oil explorers that have filed for court protection since 2015, and more may be coming in a matter of weeks. Denbury Resources Inc. and Noble Corp. missed their July debt payments, and Chaparral Energy Inc. asked lenders for more time, setting them on course for a possible default.

With oil prices hovering around $40 a barrel, the industry simply isn’t able to support debts taken on when prices were near peak levels. California’s biggest crude producer has been weighed down by massive borrowings since its spinoff from Occidental Petroleum Corp. in late 2014, right at the start of the previous downturn in the crude market.

Low levels of cash and stricter state drilling regulations added to the pressure on California Resources, despite a $320 million investment from Tom Barrack Jr.’s Colony Capital Inc. last year.

The company said it owed more than 50,000 creditors about $6.1 billion, according to a Chapter 11 petition filed in federal court in Houston.

Creditor Backing

The bankruptcy is designed to reduce debt and other obligations by more than $5 billion, the company said in a statement. The proposed restructuring agreement is backed by about 84% of term-loan lenders who hold debt issued in 2017, and 51% of the company’s 2016 lenders. The company’s joint venture partner, Ares Management also backs the proposal.

To pay for the restructuring and to keep operating during the bankruptcy, the company will borrow about $1 billion from a group of existing creditors, according to the statement. Part of the money will be used to refinance a 2014 revolving credit facility.

Many investors have shunned producers operating outside of the Permian Basin of West Texas and New Mexico, the most prolific U.S. oil patch. Even before the most recent price crash, American drillers were increasingly struggling to attract capital amid market volatility and growing doubts about their ability to generate returns for investors.

Covid-19

More roadblocks appeared this year as the Covid-19 pandemic prompted widespread lockdowns that decimated global demand, while Saudi Arabia and Russia battled for market share before finally reaching an agreement with other members of the OPEC+ group to cut production. While oil prices have recovered from the extreme lows seen in April, they remain at a level where many American producers are struggling to achieve free cash flow.

The company’s bankruptcy law firm will be Sullivan & Cromwell, assisted by Vinson & Elkins. Perella Weinberg Partners will act as investment banker, while Alvarez & Marsal North America will provide restructuring advice.

The case is California Resources Corporation, 20-33568, U.S. Bankruptcy Court, Southern District of Texas, Houston.