[ROCKMAN]

Chapter 11 bankruptcy filings...the big picture:

Top 10 Bankruptcies of 2016

With one exception, the Top 10 List of "public company" bankruptcies of 2016 consisted entirely of energy companies—solar, coal, and oil and gas producers. The exception came from the airline industry. Half of the companies on the Top 10 List filed prepackaged or prenegotiated chapter 11 cases.

Solar-energy company SunEdison pulledvnto the No. 1 spot on April 21, 2016, with $11.5 billion in assets and more than $8 billion in debt. SunEdison borrowed heavily in recent years to acquire wind and solar developers

The #2 the largest U.S. coal mining company, Peabody with with $11 billion in assets and $10.1 billion in debt.

Houston based oil and gas producer LINN Energy won the #3 spot. after reaching the broad terms of a deal with the majority of its lenders to restructure $8.3 billion in debt and obtain $2.2 billion in fresh financing. Interesting that it emerged from bankruptcy as two separate private companies. It plans sell nearly 250,000 net acres of assets, including 130,000 acres in South Texas and 90,000 acres in the Permian Basin. Another 20,000 acres on the sales block are in North Dakota.

Arch Coal collapsed into the #4. It's second-largest coal miner in the U.S. The plan provides for a debt-for-equity swap that cut Arch Coal’s debt load by 93%.

Breitburn Energy Partners LP drilled into the #5 spot.

Energy XXI trickled into the #6 spot. It implemented a Chapter 11 plan that would eliminate substantially all of its debt by means of a debt-for-equity swap.

Republic Airways taxied into the #7 position. Key features of its Chapter 11 plan includes reinstatement of its secured debt, distributions of cash and stock to unsecured creditors, and the extinguishment of old equity.

Halcón drilled its way into the #8 position. It implemented an agreement that would eliminate $1.8 billion in debt and $222 million in preferred stock by means of a debt-for-equity swap. By doing so it earned a $600 million credit line based upon its proven reserves.

The No. 9 spot was the offshore drilling rig operator Paragon Offshore. It implemented a plan that reduced its debt by approximately $1.1 billion. The Chapter 11 plan offered bondholders cash and equity in the reorganized company and allowed existing equity holders to retain a 65 percent stake in the company.

SandRidge trickled into the final spot on the Top 10 List for 2016. It implemented a Chapter 11 plan for a $3.7 billion debt-for-equity swap.

Notice a couple of things. First, how few of the well known big shale players are on the list. Second, though the process was painful for some of the creditors and shareholders, most of the companies emerged from bankruptcy not only intact but it fairly good financial. Compare that to the nearly hysterical early reports posted here that all the bankruptcy filings represented an early obituary for the US oil patch. That silly spin ignored the huge benefits corporations gain by filing Chapter 11 bankruptcy. In a number of cases the original company owners were almost total flushed and replaced by the creditors. But the corporation itself came out of the process in a much improved financial condition.

[ralfy]

"Debt restructuring and bankruptcy could be the biggest growth industry of 2017"

http://www.businessinsider.com/debt-res ... 017-2017-2

In the end, though, one realizes that this is good news only if the "lean years" won't take place in the long term.

[ROCKMAN]

ralfy - "In the end, though, one realizes that this is good news only if the "lean years" won't take place in the long term." Remember for a pubco "long term" is anything beyond the next quarter results they'll have to publish. LOL. This has always been a major problem for US E&P pubcos: their board of directors (representing the majority shareholders) often don't worry about where a company will end up several years down the road. Which is why they intentionally ignore major risk factors...like a sudden significant decrease in oil prices. Which is why they borrowed capex and drilled shale wells as fast as possible. The oil patch knew high oil prices were not sustainable: they never have been in the past and there was no reason to expect that dynamic to change.

The big question was the timing of a major correction. Consider the same set of managers running two different shale playing companies. Petrohawk is often given credit for starting the shale play. And was criticized by some for bailing out too soon and getting only $12 billion when they sold company. Some felt if they had waited a year or so they might have gotten closer to $15 to $20 billion.

And what did they do with some of that obscene profit? Formed Halcon and began try to reproduce the Petrohawk business model in the distal eastern extension of the Eagle Ford equivalent internal nicknamed the "Eaglebine". The combination of the names of two formations: the Eagle Ford and Woodbine. They also threw $millions at the deep Marine Tuscaloosa Shale.

And now being criticized for getting that timing wrong: got into those plays too late and then stayed too long. Which led to a Chapter 11 reorganization. But Halcon has been reborn as a relatively healthy company with much debt reduced and a $600 million credit line based on its reserve evaluation. The bad news, at least for the original owners: 96% of the Halcon stock now belongs to the creditors and 4% to the pre-bankruptcy shareholders. Called a "creditor-in-possession" reorganization I had mentioned early.

But bottom line: the E&P corporation called Halcon that was once dead in the water is now the same corporation (but with different owners) that is strong with little debt and abundant capex to carry on. IOW despite the rantings of some folks here Halcon and many others of the 200+ companies that filed bankruptcy did not disappear in a puff of smoke but are now viable players in the game.

And what is the future of the poster child for the crippled shale drillers: Chesapeake? Here the latest up date from last year:

Chesapeake Energy Scores Big Win To Avoid Bankruptcy

From: https://seekingalpha.com/article/396463 ... bankruptcy

"Monday was a good day for Chesapeake Energy and its shareholders. The beleaguered oil and natural gas company, which continues to fight for its survival in light of a brutal energy price crises, made an uplifting statement regarding its credit facility on Monday that sent shares through the roof. So, what happened?

Chesapeake Energy, under pressure not only to reduce debt, but also to maintain access to credit, successfully negotiated an amendment to its secured revolving credit facility agreement that is hugely beneficial to the company. Lenders regularly determine the borrowing base of oil and natural gas companies in order to make sure that borrowers are in a position to repay their debts. Obviously, this is in both parties' interests. The amendment negotiated here benefits both the lender side and Chesapeake Energy, and clears the way for the natural gas company to turn its attention to asset sales and other measures to stabilize its balance sheet.

According to Chesapeake Energy's statement from Monday, the company has pledged additional collateral, but in turn got its borrowing base reaffirmed at $4.0 billion. Further, Chesapeake Energy's date for the next borrowing base redetermination will be delayed from October 2016 to June 2017, which is a valuable lender concession.

But that wasn't all: Chesapeake Energy further gained relief with respect to its senior secured leverage and interest coverage ratios, which goes a long way in supporting the company's restructuring efforts, and preventing Chesapeake to breach covenants of its lending agreements."

None of which to say the company hasn't suffered significant financial harm over recent years. But has managed to recover to some degree without filing bankruptcy.

[ralfy]

That's my point: what happens if the "lean years" become a permanent fixture?

[coffeeguyzz]

RM
Excellent that you brought up Chesapeake in this thread as they are poised to implement some of Halcon's strategies, ie., sell off assets.
The 1.4 billion that Halcon got for its Bakken properties was for a relatively small size, but extremely productive acreage.
Money in the bank/ground, so to speak.

Many shale companies, Chesapeake in particular, have far flung holdings in various plays, that can/will be monetized for financial as well as efficiency reasons.
Chessy is thought to be ready to plunge heavily into the Powder River Basin where its profitability potential is much higher, while simultaneously selling off several billion dollars of Marcellus/Utica holdings.

Big, big shell games going on as both efficiency and consolidation takes hold industry wide.

[ROCKMAN]

ralfy - "what happens if the "lean years" become a permanent fixture?". You mean like the nearly 3 decades (1940's to 1970's) when the inflation adjusted price of oil averaged about half the current price? Or the 2 decades (1986 to 2006) when the average price of oil was significantly less then the current price?

Perhaps it depends upon how you define "lean years". Is it based on global oil production volume, the profit margin of oil companies or the market cap of the US public petroleum companies? Eventually we may see a global oil consumption at half the current level. But at that time profit margins and the market cap of the CONSOLIDATED petroleum industry might be rather high. For instance would you consider the current period "lean" for the US publicly owned petroleum industry? Granted life (and profits) for those companies took a big hit when oil prices collapsed. But the vast majority of those companies are still in business and the combined value of their stocks are still significantly higher then it was before the recent boom. Remember: current oil prices are still higher then they were in 2006. Times may not be as "fat" as they were a few years ago. But they are also not as lean as they had been for the majority of the last 70 years thanks to current oil prices. And thanks to generous bankruptcy laws allowing companies to shed tens of $BILLIONS of debt acquired during the recent" "fat" times. Currently the petroleum industry is not in as bad a condition as some here have tried to spin. Sure it took a heavy hit when oil prices collapsed.

But we still have a firm grip on your balls as well as all the other consumers. LOL.

[ROCKMAN]

That last little jab made at Ralfy made me wonder: are a lot of you thinking the US petroleum industry is currently in a panic mode? In general were not. Of course many of our creditors have been the last few years. LOL. The oil price crash hasn't changed THE major concern we had for years prior to the recent boom: diminishing number of viable oil drilling opportunities in the US.

The US petroleum industry is by far the most effective. Which is both good and bad news. Yes, we are one of the largest oil producer on the planet. But we got there by rapidly developing our reserves. Which leaves us with fewer to develop in the future AT THE CURRENT PRICE. The surge in oil prices did allow us to develop a resource that had been known for decades...the shales. We still have higher then average oil prices allowing to develop some new reserves. But the boom is over.

[ROCKMAN]

If I may I would like to take a quick informal poll. The thread has gotten over 1,300 views in just a few days. Shocked the hell out of the Rockman. Just 1/10 of that number would have been a surprise. After all it's primarily a financial aspect which isn't nearly as exciting as geology. LOL. Even more intriguing is the almost total lack of responses...negative or positive.

So the poll: no wordy responses are requested...just post the corresponding letter option:

A) Knowing the Rockman is a paid shill for the petroleum industry I expected to find a lot of undocumented bullsh*t I could bust his balls over. But not finding any I didn't want to respond negatively and provide the Rockman with more opportunity to expand on the subject.

B) Knowing that the Rockman's posts always contain gold nuggets of useful info I couldn't wait to read his latest gems.

C) I was not aware of the actual benefits of companies filing bankruptcy and tended to believe the original reports that the huge number represented the beginning of the end of the petroleum industry. I now understand that while the circumstances that led to the 200+ bankruptcy filings were financial devastating for those companies the filings themselves represent at least a partial improvement for much of the industry. And of course, that the nightmare of the industry's creditors became worse for some while also at least partially bailing out others.

[coffeeguyzz]

You get a 'B' from me, Rock.

BTW, if anyone is interested, #3 on your list of bankruptcies - Ultra - actually emerged with higher value post BK proceedings a few months ago.

There are a few articles on the net describing how this was done.

With the increasing frenzy focused on the financial status of the shale operators, this info should come as quite a surprise to many readers.

Now, if you REALLY want to look at financials, check out the coming implosion of US wind and solar power industries.
I just did some comparisons with the nascent east coast offshore wind versus CCGT and found a 250 to 1 price differential.
The Investment and Production tax credits are expiring in the coming years and only locally mandated purchase agreements will allow them to endure, if, indeed, they can.

[Cog]

Pretty much C.

[Plantagenet]

I gotta say "B".

I already knew all about the boom-bust nature of the oil biz, and the way the assets of bankrupt oilcos get picked up by surviving companies.

But I still gotta say "B" in order to prop up R-man's giant ego.

[ROCKMAN]

Mucho thanks, amigos.

Coffee - "Ultra - actually emerged with higher value post BK proceedings a few months ago." To be honest I was surprised by how many companies filing Cheaper 11 not only improved their condition but were actually pretty strong. Typically when the "debtor-in-possession" approach was utilized. Essentially made the debtors partners in the company such as they becoming owners of 96% of Halcon. What folks need to realize is that the new owners (the debtors) of Halcon got the company at a huge discount. In mid 2014 the Halcon stock peaked at $100 BILLION. But when Halcon was forced to trade debt for stock 100% of it stock had a total value of little more then $1 BILLION.

https://ycharts.com/companies/HK/market_cap

And neither number ($100 BILLION or $1 BILLION) represented the true value of its assets when oil was $90+/bbl or $45 bbl. When the market cap peaked revenue was $1.4 BILLION per year but net income, largely due to servicing debt, was only $200 MILLION/yr and then fell to -$2 BILLION/yr by the beginning of 2016. But since the Chapter 11 restructuring (removing most of the debt repayments) the net revenue is back in positive territory.

http://www.macrotrends.net/stocks/chart ... me-history

And here is how the new owners of Halcon (the former debt holders) are increasing the value of THEIR company. From 11 July: " Halcon Resources to sell Williston Basin assets for $1.4 billion in cash, shares surge 18%". Right now the once questionable debt these folks were owed by Halcon is starting to look like a pretty good investment. At least a lot better then the folks who had $100 BILLION invested in the company at one time. LOL.

And for sake of full disclosure the Rockman had no f*cking idea how much crippled companies were benefiting from federal bankruptcy laws. Remember: I'm just a geologist...not a f*cking CPA. LOL. Everything I posted on this thread I just learned this week. Once again the power of the www combined with the spare time of a cripple trapped in a chair 24 hours a day. Essentially when the Rockman isn't working on company projects he's cruising the web educating himself of subject matters that pop up here. Just like all the sh*t he learned about the refinery biz he never knew before.

I regret not digging into the bankruptcy details months ago when some folks here were highlighting the surge in oil patch bankruptcies as TEOLAWKI. LOL.

[ralfy]

$this->bbcode_second_pass_quote('ROCKMAN', 'r')alfy - "what happens if the "lean years" become a permanent fixture?". You mean like the nearly 3 decades (1940's to 1970's) when the inflation adjusted price of oil averaged about half the current price? Or the 2 decades (1986 to 2006) when the average price of oil was significantly less then the current price?

Perhaps it depends upon how you define "lean years". Is it based on global oil production volume, the profit margin of oil companies or the market cap of the US public petroleum companies? Eventually we may see a global oil consumption at half the current level. But at that time profit margins and the market cap of the CONSOLIDATED petroleum industry might be rather high. For instance would you consider the current period "lean" for the US publicly owned petroleum industry? Granted life (and profits) for those companies took a big hit when oil prices collapsed. But the vast majority of those companies are still in business and the combined value of their stocks are still significantly higher then it was before the recent boom. Remember: current oil prices are still higher then they were in 2006. Times may not be as "fat" as they were a few years ago. But they are also not as lean as they had been for the majority of the last 70 years thanks to current oil prices. And thanks to generous bankruptcy laws allowing companies to shed tens of $BILLIONS of debt acquired during the recent" "fat" times. Currently the petroleum industry is not in as bad a condition as some here have tried to spin. Sure it took a heavy hit when oil prices collapsed.

But we still have a firm grip on your balls as well as all the other consumers. LOL.

[ralfy]

$this->bbcode_second_pass_quote('ROCKMAN', 'T')hat last little jab made at Ralfy made me wonder: are a lot of you thinking the US petroleum industry is currently in a panic mode? In general were not. Of course many of our creditors have been the last few years. LOL. The oil price crash hasn't changed THE major concern we had for years prior to the recent boom: diminishing number of viable oil drilling opportunities in the US.

The US petroleum industry is by far the most effective. Which is both good and bad news. Yes, we are one of the largest oil producer on the planet. But we got there by rapidly developing our reserves. Which leaves us with fewer to develop in the future AT THE CURRENT PRICE. The surge in oil prices did allow us to develop a resource that had been known for decades...the shales. We still have higher then average oil prices allowing to develop some new reserves. But the boom is over.

[ROCKMAN]

ralhy - 'By lean years," I am referring to oil discoveries at an all-time low". I'll go along with that. As I've explained many times 40 years ago my first mentor at Mobil Oil explained that this was the inevitable path we were on. It's easy to look at the US oil production curve and see that since 1971 the oil patch was experiencing increasing leaner years. At least until those high oil prices combined with huge debt loads brought on the shale boom. But even those plays weren't really new "discoveries". They were known for decades. They just weren't commercial to develop until oil prices boomed.

Many of you think you've discovered something new. The oil patch has understood this dynamic for many decades. Welcome to the wake. LOL.

[dirtyharry]

B+C from me ,Rocky

[Outcast_Searcher]

D - this is normal capitalism, and not surprising.

(As I've been saying over time, despite the hand wringing of the ETPers, the oil is still there, and long term, it will be gathered, processed and sold at a reasonable profit -- IF the demand for it is there (i.e. if alternatives like green energy don't remove the demand for it (in coming decades)).

The same thing happens in other businesses (witness the destruction of the retail space as the internet intrudes, or the past destruction of most of the shopping malls). Why should the oil biz be any different? Actually, given how volatile oil prices are, I'm surprised there isn't more financial turmoil than we normally see in the oil biz.

[ROCKMAN]

Outcast - "I'm surprised there isn't more financial turmoil than we normally see in the oil biz.". As shown that's much due to federal bankruptcy law that allow much of the damage of the oil price but being shifted from the companies to the creditors. One hell of a lifeline, wouldn't you say? LOL.

And don't think that ever pubco that understood the risk they were taking by overextending their credit didn't know those bankruptcy laws were out there just waiting for them to take advantage of. I've sat in meeting over the years with mangers who said something like: "Hey, what's the worst that could happen? We file Chapter 11." And laugh. Really: remember that CEO making $700,000 per year could still be pulling in the same salary while going thru Chapter 11: typically the bankruptcy court guarentees salaries after a filing is made.

He might even earn a nice bonus if he can dump 100% of his company's debt. LOL.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'A')nd don't think that ever pubco that understood the risk they were taking by overextending their credit didn't know those bankruptcy laws were out there just waiting for them to take advantage of. I've sat in meeting over the years with mangers who said something like: "Hey, what's the worst that could happen? We file Chapter 11." And laugh. Really: remember that CEO making $700,000 per year could still be pulling in the same salary while going thru Chapter 11: typically the bankruptcy court guarentees salaries after a filing is made.

[ralfy]

$this->bbcode_second_pass_quote('Outcast_Searcher', 'D') - this is normal capitalism, and not surprising.

(As I've been saying over time, despite the hand wringing of the ETPers, the oil is still there, and long term, it will be gathered, processed and sold at a reasonable profit -- IF the demand for it is there (i.e. if alternatives like green energy don't remove the demand for it (in coming decades)).

The same thing happens in other businesses (witness the destruction of the retail space as the internet intrudes, or the past destruction of most of the shopping malls). Why should the oil biz be any different? Actually, given how volatile oil prices are, I'm surprised there isn't more financial turmoil than we normally see in the oil biz.