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Page added on September 25, 2015

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How Many More Oil & Gas Companies Will File for Bankruptcy?

Business

The bankruptcy of private equity-backed Samson Resources sent shock waves through the oil and gas industry last week. While it was expected, as word had seeped out that it had hired restructuring advisers, the news was still a bit of a jolt. If so-called smart money like Kohlberg Kravis Roberts (KKR – Get Report) can’t manage to keep Samson afloat through the industry’s downturn (and loses its $4 billion investment in the process), then who can?
Fitch Ratings said last week that the Samson bankruptcy drove its high-yield bond default rate for the energy sector to almost 5%, the highest in 16 years. And it’s only going to get worse: In May, Moody’s Investors Service projected that the default rate for 48 exploration and production companies rated B2 or lower would increase to 7.4% by March of next year.
If oil prices stay low, the capital markets dry up and the banks cut back on lending, which may happen this fall as banks conduct their regular six-month re-evaluation of asset values under pressure from regulators. An increasing number of companies may file for Chapter 11 later this year and next. “In April, there was lots of leeway from the banks,” Ryan Bouley, a managing director in the restructuring practice at Opportune, said on a King & Spalding  breakfast panel in Houston this week. “October may be more draconian.”
Nineteen oil and gas companies have fallen into bankruptcy in the past year or so. Endeavour International was the first big one to file, in October, after struggling under a pile of debt and worsening prospects, and the case drags on, despite expectations that it would exit quickly. Endeavour was followed by other good-sized companies like Quicksilver Resources (in March), Sabine Oil & Gas (July) and Hercules Offshore (August). Smaller companies like Saratoga Resources (June), Dune Energy (March), American Eagle Energy (May), Cal Dive International (March) and Boomerang Tube (July) also filed.
Companies that have already hired restructuring advisers, which may lead them into the bankruptcy courts, include Vantage Drilling (VTG – Get Report) , RAAM Global Energy (which has debt coming due Oct. 1), U.S. Shale Solutions, Paragon Offshore (PGN – Get Report) , Midstates Petroleum (MPO – Get Report) , Swift Energy (SFY – Get Report) , Venoco and Energy XXI (EXXI) .
Lucas Energy (LEI) warned in July that if it couldn’t secure financing to drill its oil and gas wells in Texas, it might be forced to file for bankruptcy protection. Earlier this month, it did manage to snag a $2.4 million line of credit from Silver Star Oil  and an amendment of its senior secured note to October of next year, but worries linger.
Observers are also concerned about Halcon Resources (HK) and SandRidge Energy (SD) , which have done distressed debt exchanges recently, as well as Magnum Hunter Resources (MHR) , Goodrich Petroleum (GDP) , Resolute Energy (REN) and Rex Energy (REXX) .
Avista Capital Partners-backed Sidewinder Drilling also appears to be in trouble, with Moody’s giving it a negative outlook last month on worries it would struggle to service its debt.
Other super-levered names — which may not make their way to the courts but will nonetheless struggle — include Approach Resources (AREX) , Bill Barrett (BBG) , Chesapeake Energy (CHK) , Comstock Resources (CRK) , Laredo Petroleum (LPI) , Triangle Petroleum (TPLM) and Ultra Petroleum (GDP) .
Marc Schwartz, a managing director at HSSK LLC, pointed to the Hercules Offshore filing as a case study for what other bankruptcies of energy companies that have high-yield bond debt will look like, swapping its senior notes for the majority of equity in the reorganized company, with noteholders also providing $450 million in new financing.
“We are going to see more prepackaged and prenegotiated reorganization plans that result in the elimination of the equity and some of the debt, and the conversion of some of the debt [into equity],” he said. “Bankruptcy will be required to get those recapitalizations done.”
Some companies are selling assets to bring in much-needed cash to keep going. EnCana (ECA) sold its Haynesville assets last month to the Blackstone Group-backed GeoSouthern Energy for $850 million. W&T Offshore (WTI) unloaded some of its Permian Basin assets to Kelso & Co.-backed Ajax Resources for $376.1 million. And Alta Mesa Holdings sold its Eagle Ford properties to EnerVest for $125 million. Magnum Hunter, which was briefly in default last month, is expected to sell enough midstream and other assets to raise about $1 billion, estimated Topeka Capital Markets analyst Gabriele Sorbara.
While the spread between how much a company wants to sell assets for and what the buyer is willing to pay is still wide, it may be narrowing, especially for nearby properties where costs would be lower to operate them. “The name of the game today is extending liquidity,” John-Paul Hanson, managing director at Houlihan Lokey, said at the King & Spalding breakfast. “A&D [acquisition and divestiture] activity is starting to re-emerge.”
However, divestitures may only be a temporary fix for some companies if oil prices stay “lower for longer,” as many predict, delaying what many believe will be inevitable for many companies. Syndicated finance head Brandon Annett of Texas Capital Bank said at a BoyarMiller breakfast forum last week, “We don’t see asset sales solving some capital structures, making bankruptcy likely.”
Pass the coffee, or something stronger.

the street



41 Comments on "How Many More Oil & Gas Companies Will File for Bankruptcy?"

  1. makati1 on Fri, 25th Sep 2015 10:45 pm 

    Short answer: Many, many more.

    Glad I have no oily investments to worry about. Or 401ks or mutual funds or other shrinking “assets”.

  2. Nony on Fri, 25th Sep 2015 11:28 pm 

    Some of these companies are just overextended, but they have some very nice prospects. E.g. MHR has nice area in the Utica/Marcellus. Even if the entity goes under, that is land that is prime for gas drilling and someone will do so after the entity is liquidated.

  3. makati1 on Sat, 26th Sep 2015 2:43 am 

    Dream on Nony. There has to be a working system to finance them and those days are about over. If they cannot make a profit, they will not happen.

  4. apneaman on Sat, 26th Sep 2015 3:08 am 

    nony, overextended? Another redundant mean nothing econ 101 term. What is the difference between being extended vs overextended? Can I be underextended….with negative growth while eating Jumbo shrimp and potato spuds?

  5. JuanP on Sat, 26th Sep 2015 9:40 am 

    Mak is right. The most likely answer is many, many more if prices remain where they are through next year, which seems quite likely. Most of this companies will run out of cash and things to sell. Also, the lower value of their reserves at this prices will cut down their borrowing capacity. And there is no hedging their future production either with prices and futures where they are.

    Unless some unforeseen geopolitical event increases oil prices significantly in the next twelve months, this will become a brutal bloodbath.

  6. penury on Sat, 26th Sep 2015 9:42 am 

    If one has the ability to look under the covers most corporations, money center banks and extraction industries are already bankrupt, just keeping on as zombies. However, VW may lift the covers a bit and some of the rot will be exposed. European auto industry is apparently hosed. U.S. depends on .gov forgiveness for owners and.sellers and people holding loans.

  7. ghung on Sat, 26th Sep 2015 9:51 am 

    Many of these distresses companies will be bought/bailed out by bigger companies with plenty of cash. Companies like Exxon/Mobile, Chevron, etc. are sitting on loads of cash, and there’s plenty of Chinese money looking for a bargain, like CNOOK bailed out Chesapeake a few years ago (not so sure that one turned out to be a bargain).

  8. JuanP on Sat, 26th Sep 2015 10:01 am 

    Ghung, I agree. Many of these companies and their assets will be sold for pennies on the dollar, before or after bankruptcy proceedings, if there is a chance to get a decent ROI. That is capitalism at work.

  9. penury on Sat, 26th Sep 2015 2:22 pm 

    Of course the dream is that the large oil companies have bales of cash to buy the distressed companies.Or that Chinese money will step in and save the day. Well a quick exam of the financials of the majors show that for most debt exceeds cash on hand. Like other majors these companies have spent the cash and borrowed billions more to retain stock values. China will not be bailing anyone out. From my reading of the tea leaves it appears that we have a confluence of predicaments and a scarcity of solutions.

  10. shortonoil on Sat, 26th Sep 2015 3:14 pm 

    After a 153 year run the petroleum industry has now entered its second phase; that of contraction. The world has burned through 1450 Gb of the world’s 4000+ Gbs of liquid hydrocarbons, and most of the remainder is just not worth taking out of the ground. Most of the world’s petroleum resource can not power enough economic activity to justify its production. The energy cost to extracted it, and produce its products is greater than the energy it delivers.

    When energy companies start running out of energy to sell, bad things begin to happen. The world goes into a deflationary spiral for which there is no easy exit. For petroleum, prices go down as the economy contracts, and the industry finds itself in ever worse financial condition:

    http://www.thehillsgroup.org/depletion2_020.htm

    This is not a one time event. It will continue on for many years. Many companies will fail, and the buyers of failed companies will fail. It is the Hall Mark of the ending of the oil age.

    http://www.thehillsgroup.org/

  11. apneaman on Sat, 26th Sep 2015 3:59 pm 

    Globalization Is In Last Stage Collapse: Revelation

    “The zombies never saw it coming. Incapable of trusting anyone who could be trusted”

    Globalization was sold as an attempt to create record prosperity. Instead it created record poverty. In attempting to monetize poverty, Econo-dunces bankrupted themselves via their own impossible model. Shit happens, man…

    “The average American will drain as many resources as 35 natives of India and consume 53 times more goods and services than someone from China..With less than 5 percent of world population, the U.S. uses one-third of the world’s paper, a quarter of the world’s oil, 23 percent of the coal, 27 percent of the aluminum, and 19 percent of the copper.”

    The odds that the consumption-oriented lifestyle would scale across 7.4 billion people, was always ZERO, as indicated by third grade math.”

    http://ponziworld.blogspot.ca/2015/09/globalization-is-in-last-stage-collapse.html?utm_content=bufferd2896&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

  12. onlooker on Sat, 26th Sep 2015 4:18 pm 

    Yes this impending collapse was a slow process that always gave indications where it could go and would go given certain factors. Limits to Growth in this sense was such a compelling analysis in so much as they crunched the numbers, created different variables and assumptions yet best of all always assumed that in fact their were limits! Well we chose to ignore that basic underlying fact. In the meantime the real world was always giving us hints of overextending, of limits approaching. We ignored that too. As Apeman states we must be inherently incapable of recognizing this pattern or hardwired to ignore it.

  13. jjhman on Sat, 26th Sep 2015 9:06 pm 

    Here’s a supporting article from Bloomberg: http://www.bloomberg.com/news/articles/2015-09-25/junk-debt-investors-fight-for-scraps-as-u-s-shale-rout-deepens

    The shocker for me was that one of the big losers was Franklin Resources, one of the big names in big mutual funds. As far as I can tell these companies have no credible skills when it comes to investing other people’s money.

  14. makati1 on Sun, 27th Sep 2015 5:23 am 

    Ap, but look at how much better off the rest of the world would be if the Us only consumed their 4.5% of the world’s resources.

  15. Davy on Sun, 27th Sep 2015 8:01 am 

    The fact is Asia is a cancer of overpopulation and overconsumption “NO FUCKING BETTER”. How can 4.5 Billion people be a good thing in any way shape or form? The world population should be 500MIL tell me it is not obscene to have 4.5BIL people killing the earth in such a small region of the planet.

    It is asswipes who constantly bring home the point of the excessive American consumption standards in short burst of puke but fail to mention the other millions of 1%’ers spread around the globe doing the same fucking thing. The US is bad period at almost every level per a collapsing world, there, you feel better? Asswipes that do not acknowledge that overpopulation is a rich and poor thing. You guys are friggen obnoxious and idiots!!!!

  16. onlooker on Sun, 27th Sep 2015 8:25 am 

    I second that Davy. Overconsumption and Overpopulation are the twin destroyers of worlds. Like saying which is worse immolating yourself or taking cyanide both will kill you and both in a gruesome way.

  17. makati1 on Sun, 27th Sep 2015 8:59 am 

    Hate is like taking poison and expecting the other person to die. LOL

  18. Davy on Sun, 27th Sep 2015 9:07 am 

    Says the biggest hate filled, war loving, and resentful board commentor. Enjoy your own medicine for a change.

  19. rockman on Sun, 27th Sep 2015 9:38 am 

    Focusing on the bankruptcy count doesn’t come close to measuring the bleeding. Many fataily injured companies will be acquired by othere companies and will never see a bankruptcy court. The Rockman is currently evaluating 5 such situations.

    This is especially true of the service companies.

  20. Kenz300 on Sun, 27th Sep 2015 10:10 am 

    Climate Change is real… we need to deal with the cause….. Fossil fuels…..

    Fossil fuels powered the past…. the future will be powered by wind, solar, geothermal and wave energy………

    Solar Surges in the Middle East and North Africa – Renewable Energy World

    http://www.renewableenergyworld.com/articles/2015/09/solar-surges-in-the-middle-east-and-north-africa.html

    Solar Beats Gas in Colorado – Renewable Energy World

    http://www.renewableenergyworld.com/articles/2015/08/solar-beats-gas-in-colorado.html

  21. shortonoil on Sun, 27th Sep 2015 10:26 am 

    A deflationary spiral means a decline in prices, and an even bigger decline in income. That leaves debt unserviceable, and soon no one will be tempted to acquire more of it. That will destroy the credit markets which are the origin of all fiat currencies.

    The depletion of petroleum is now reducing the purchasing power of the general economy by $380 billion per year. This has been leveraged up by the Central, and Shadow Banking system by a factor of 50, or better to 1. The printing of more fiat currency to cover their positions will only leave them in more dire straits. Expansion of the money supply is now producing almost no increase in GDP. It is leaving them with increased liabilities, and no assets to off set that increase.

    As petroleum’s ability to power the economy declines the huge leverage being used to maintain an appearance of normalcy, and service existing debt is producing over production of all goods. Commodities in general, and especially energy are feeling the pressure:

    http://www.zerohedge.com/news/2015-09-27/chinas-hard-landing-has-arrived-chinese-coal-company-fires-100000

    The one hundred, and fifty year grow cycle of industrialism which was founded on immense reserves of easy to extract natural resource is now drawing to a close. Petroleum is the canary in the coal mine (pun intended), and it is why we have spent so much time, and effort into modeling, and analyzing it. The Etp Model gives a previously unappreciated view of the situation at hand.

    http://www.thehillsgroup.org/

  22. Nony on Sun, 27th Sep 2015 10:27 am 

    I like cheap gasoline.

  23. Boat on Sun, 27th Sep 2015 11:09 am 

    Nony,
    Filled up at $1.82 last week. Saw a station with $1.79 a few days later. Somebody tell me how this is not great for all importers. Crack spreads are huge and have been for awhile. the refiners have plenty of bucks for upgrades and expansion to become more efficient.
    Hawaii is skipping nat gas and going straight to solar for electricity as they primarily still burn oil. 2045 is their goal to become 100% renewable. The most aggressive target to date.

  24. MrNoItAll on Sun, 27th Sep 2015 11:45 am 

    The whole world economy is swirling down the commode, taking everybody and everything — hopes, dreams, aspirations, peace of mind, security — with it, and here are Nony and Boat backslapping each other on how cheap their gasoline is, for now. What a pair!

  25. marmico on Sun, 27th Sep 2015 11:55 am 

    That leaves debt unserviceable, and soon no one will be tempted to acquire more of it. That will destroy the credit markets which are the origin of all fiat currencies.

    What a crock of shit. U.S. household debt service payments and financial obligations are at generational lows.

    https://research.stlouisfed.org/fred2/graph/?g=1XnH

  26. GregT on Sun, 27th Sep 2015 12:16 pm 

    “Somebody tell me how this is not great for all importers.”

    Because many of the exporters are losing their shirts Boat. You can only import what others can afford to export.

  27. Boat on Sun, 27th Sep 2015 1:00 pm 

    GregT,
    Commodities have been cyclical since the beginning of trade. This is average normal markets at work. You could easily argue if it were not for geopolitical events in the Middle East oil prices would have never spiked for 6 years and fracking would have never happened except as small time exploratory research.

  28. Boat on Sun, 27th Sep 2015 1:07 pm 

    Doomers constantly complain about information that is just reality. Take marmico’s latest link.

    U.S. household debt service payments and financial obligations are at generational lows.

    https://research.stlouisfed.org/fred2/graph/?g=1XnH

    Anybody that hasn’t refinanced to a home loan of 4% is just stupid. When replacing your car how can you complain about a high mileage car at a low percentage rate. These options are just smart money and if they are efficient, good for the world.

  29. apneaman on Sun, 27th Sep 2015 2:29 pm 

    No matter how much things have changed boat, you manage to pull off a series of painful mental contortions and call it normal. Painful to read. This is because this is what the propaganda machine has done and you follow along with it like the bouncing ball on top of the text in the old commercial. All these econ-priests have been furiously moving the goalposts – there is a new normal every fucking week now and some “expert” mouthpieces comes out with an op-ed piece about how it’s good for you and a million desperate true believer tards like you lap it up and are all over the inter-tubes parroting it and preaching it as if it were gospel. It is so obvious I make a game of it and put my mental timer on to see how long it takes until a commenter tard like you repeats it. Yes sirree that ZIRP is ancient sound fundermental econ wisdom – it’s “scientific” by golly (last months NYT op-ed and Fed proclamation) The shit they preach today; the policies, would have been scoffed at decades ago as economic hersey – today they are “self evident” as the truth. Keep swallowing it boat.

  30. Boat on Sun, 27th Sep 2015 3:22 pm 

    apeman,
    You mean facts like with only 200 drillers nat gas production is still growing when there was less production in the US when there were 1,600 drillers just a few years ago?. This is one of the main factors underpinning the US economy which is still growing.
    You mean facts like the world economy is still growing at over a 3% GDP rate in spite of China and many other oil exporting countries having problems?
    I can’t help it if doomers cant see reality when the facts are right in front of you. The only thing you can see and write about is anything negative and it seems never in context with the big picture. All the bashing and blaming does not one thing to add credibility of your arguments. Try some perspective sometime.

  31. apneaman on Sun, 27th Sep 2015 4:44 pm 

    perspective? what perspective ignores debt? yours.

  32. GregT on Sun, 27th Sep 2015 4:45 pm 

    “Anybody that hasn’t refinanced to a home loan of 4% is just stupid. When replacing your car how can you complain about a high mileage car at a low percentage rate. These options are just smart money and if they are efficient, good for the world.”

    These options are called debt Boat, nothing smart what-so-ever about being in debt. Just plain stupid.

  33. apneaman on Sun, 27th Sep 2015 4:45 pm 

    ‘Frack now, pay later,’ top services companies say amid oil crash

    http://www.reuters.com/article/2015/08/07/us-fracking-halliburton-schlumberger-nv-idUSKCN0QC0F220150807

  34. GregT on Sun, 27th Sep 2015 4:46 pm 

    You beat me to it Apnea. 🙂

  35. apneaman on Sun, 27th Sep 2015 4:55 pm 

    Boat, luckily in our new abstract economy we no longer need minerals to build and manufacture things. Just natgas to keep the house warm and gasoline for daily dollar store drives.

    Glencore share price drops to its lowest point since listing on worsening commodities rout

    http://www.cityam.com/225176/glencore-share-price-crashes-its-lowest-point-listing-worsening-commodities-rout

    Thus we no longer need heavy equipment either.

    When This Caterpillar Dies, We Don’t Get a Butterfly [UPDATE]

    http://www.dailyimpact.net/2015/09/23/when-this-caterpillar-dies-we-dont-get-a-butterfly/

    or factories

    U.S. factory activity stuck at near two-year low in September: Markit

    http://www.reuters.com/article/2015/09/ … K520150923

    All you need is a FED app that tweets nonstop happy graphs to your brain all day.

  36. apneaman on Sun, 27th Sep 2015 5:03 pm 

    Russian Oil Producers Head for Tax Showdown Amid Output Warnings

    http://www.bloomberg.com/news/articles/2015-09-27/russian-oil-producers-head-for-tax-showdown-amid-output-warnings

  37. Boat on Sun, 27th Sep 2015 5:38 pm 

    GregT,
    When it is cheaper to buy than rent go ahead and rent. I would expect nothing less from a doomer.

  38. Boat on Sun, 27th Sep 2015 5:48 pm 

    Russian Oil Producers Head for Tax Showdown Amid Output Warnings

    Mak says the Russians and Chinese are gold. Must be so.

  39. GregT on Sun, 27th Sep 2015 6:08 pm 

    I have zero debt Boat. My house, car, truck, RV, and two boats are all payed off. Nothing doomerish at all. I would consider that to be positive.

  40. Boat on Sun, 27th Sep 2015 6:35 pm 

    GregT,
    Good for you. Your carbon footprint is a little high for my tastes but I live in a glass house. We have a pool. For over the last 30 years I have been dollar cost averaging and figure I am way ahead paying off loans. The last decade has been the best of all.
    A bigger better more efficient home and much more efficient car/truck.
    Now it the world truly collapses and I lose all that paper money I will have made the wrong choice. But I have survived without that investment till now. I am not ready to cash out and start a farm just yet. lol

  41. joseph on Mon, 18th Apr 2016 4:25 pm 

    can you supply drilling pipe or t-shirt by contract


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