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Oil Patch Bankruptcies Hit $17.4 Billion And More Could Be Coming

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Oil Patch Bankruptcies Hit $17.4 Billion And More Could Be Coming

By Rupert Hargreaves

Nine North American oil and gas producers have commenced Chapter 11 bankruptcy proceedings so far this year, (to March 7) according to law firm Haynes and Boone LP’s Oil Patch Bankruptcy Monitor.

These nine oil patch bankruptcies take the total number of North American oil and gas producers that have filed for bankruptcy since the beginning of 2015 to 51. These bankruptcies, including Chapter 7, Chapter 11, Chapter 15, and Canadian cases, involve approximately $17.39 billion in cumulative secured and unsecured debt. The total number of bankruptcies and total owed to creditors has risen sharply from November last year. Indeed, when the Oil Patch Bankruptcy Monitor was put together back in November, a total of 36 firms had collapsed owning a total of $13.1 billion.



Swift Energy Company and Magnum Hunter Resources Corporation are the largest companies to have filed for bankruptcy since November. These companies collapsed owing a total of $1.2 billion and $1.1 billion in both unsecured and secured debt respectively. All of the bankruptcy filings so far this year have been relatively small in comparison. The largest company to file is Argent Energy (U.S.) Holdings, Inc., Owing a total of $52 million. Osage Exploration And Development, Inc. is the next largest. Osage filed owing a total of $34.5 million to creditors.

The cumulative value of secured and unsecured debt involved in North American oil patch bankruptcies this year amounts to less than $200 million, a relatively small chunk of $17.39 billion total indicating that the industry could be weathering the tough price environment better than many expect.

North American oilfield services bankruptcies

Haynes and Boone also tracks North American Oilfield Services Bankruptcies, and it looks as if the oil service industry is suffering much more than the E&P business.


So far this year seven North American oil services companies have collapsed owing a total of $2.54 billion to creditors.

Throughout the whole of 2015 the total value of bankruptcies totalled $5.3 billion, Vantage Drilling Co. Accounted for $2.8 billion of this amount. There have been 46 oil services bankruptcies filed since the beginning of 2015, including their secured and unsecured debt.

Oil’s Financial Depletion: What’s Ahead For Energy Firms?

The total amount of aggregate debt in 2015-2016 is almost $8 billion; the average debt in these cases is more than $175 million, and the median ranges are from $13 to $17 million. The largest reported bankruptcy has a total debt of more than $2.5 billion (Vantage) and the second largest is just below $2.5 billion (Paragon Offshore).



Oil patch bankruptcies: More to come

Haynes and Boone’s Borrowing Base Survey (another study conducted by the law firm to assess the impact of oil prices movements on borrowing bases) shows that as a result of slumping oil prices, key players in oil and gas financing are predicting a decrease in the ability to borrow against reserves by an average of 38%. Lenders expect a 25% drop and borrowers expect a 28% reduction.

The survey, conducted in January, showed a drastic change in mentality across the oil patch. Respondents included oil & gas executives, financiers and professional services companies.

A reduction in borrowing bases is now the single largest threat to small E&Ps going forward.

Private Equity Funds Enter Oil Patch As Regulations Usher In Opportunity

Borrowing bases are redetermined roughly every six months. Figures used by banks to calculate the value of the reserves used to borrow against are based on market oil prices. And with Haynes and Boone’s Borrowing Base Survey predicting an average cut of 38% to borrowing bases when the next round of revaluations take place, it looks as if many oil companies are going to find their liquidity deteriorating significantly going forward.

Many companies face seeing the value of their reserves falling below the amount of money they have borrowed from their bank, leaving them with a gap they have to close when a redetermination occurs. Cost cutting and a reduction in capex can help close the gap. However, most shale oil producers are faced with a Catch 22 situation. Cutting capex hurts production, which constricts cash flow and prevents explorers from developing new reserves that can be added to borrowing bases.

High risk of bankruptcy for one-third of oil firms this year: Full Deloitte Report

However, according to the spring 2016 Haynes and Boone Borrowing Base Redeterminations Survey, most indebted North American oil and gas producers expect to be able to continue operations even if they are faced with a borrowing base deficiency in spring 2016.

According to 403 respondents to the survey, only 51 or 13% of the total sample expects companies to restructure or declare bankruptcy if they are faced with a borrowing base deficiency. 36% of the respondents believe companies will be up to negotiate an amendment/extension with the lender while 31% of respondents think companies will sell non-core assets to make up the difference.



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Scorpio

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there is a lot of capital coming out of the oil markets, ie being pulled back,

so where does that redeploy to keep the dream alive?