OKLAHOMA CITY – An oil and/or gas exploration/production company declared bankruptcy every 8-2/3 days last year.
Bankruptcies among companies that engage in hydraulic fracturing (“fracking”) accelerated in 2019 to 42 and involved nearly $26 billion in debt, double the $13.2 billion in bankruptcy-related debt filed in 2018 and triple the $8.5 billion filed in 2017. “Following a steep drop in oil prices in the fourth quarter of 2018 there was a sharp increase in the number of filings in 2019,” reported Haynes & Boone, an international legal firm that publishes a quarterly report on bankruptcies. After years of mounting debt and negative cash flows, the fracking sector has experienced an ongoing wave of bankruptcies over the past five years, wrote Kathy Hipple, financial analyst with the Institute for Energy Economics and Financial Analysis. Natural gas prices, which dropped by one-third in 2019, and persistently low oil prices throughout the year – averaging $57 per barrel compared to $65 the year before – “pushed 42 companies focused on unconventional production of oil and gas to file for bankruptcy protection in 2019,” Hipple wrote.
OIL/GAS INDUSTRY ‘NEVER RECOVERED’ FROM PRICE SLUMP
Moody’s credit rating service concluded that the oil and gas industry never “fully recovered” from the 2015-16 oil price slump. Records show that 208 North American oil/gas producers declared bankruptcy between January 2015 and Dec. 31, 2019, affecting more than $121 billion in debt, Haynes & Boone reported. Bankruptcy related debt among oilfield services companies that rely on revenue from frackers also doubled in 2019 compared to 2018, Ms. Hipple said. More than $8 billion in bankruptcy filings were logged in the oilfield services sector in 2019, compared to less than $4 billion in 2018, Haynes & Boone said. The oilfield services sector has recorded nearly 200 bankruptcies involving more than $66 billion in debt since 2016, ledgers reflect.
OILFIELD SERVICE INDUSTRIES EXPERIENCED HEAVY LOSSES
Halliburton and Schlumberger, the world’s largest oilfield services companies, recorded significant losses in 2019 but remain afloat. Key Energy Services and its lenders announced a restructuring support agreement outside of bankruptcy court on Jan. 27. Restructuring is expected to be complete by the end of this month, company officials said. Key reported a net loss of $88.78 million in 2018. The Houston based company reported it had 2,825 employees that year. Key’s stock was selling for 10¢ to 12¢ per share on Feb. 3, according to MarketWatch. Fort Worth oilfield service company Basic Energy Services announced late last year it plans to exit the pumping services market after completion of all work currently in process; real estate and equipment will be sold this year in Q1. Basic intends to focus on its midstream subsidiary. Primarily a well services and completion company incorporated in 1992, Basic Energy Services also spun off its saltwater disposal wells and oilfield wastewater pipelines into a subsidiary that investors believe will be an attractive acquisition target. Basic reportedly has 4,100 employees across the U.S., and its operations are concentrated in major U.S. onshore oil-producing regions in Oklahoma, Texas, New Mexico, Arkansas, Kansas, Colorado, Louisiana, Wyoming, North Dakota, and California. Basic was delisted from the New York Stock Exchange late last year and now sells over-the-counter as a penny stock. Its stock was commanding 24¢ per share on Feb. 3. The company posted a $144.6 million loss in 2018.
MORE BANKRUPTCIES ‘ALL BUT CERTAIN’
“Given the massive wave of debt facing E&P companies, more bankruptcies are all but certain,” Ms. Hipple wrote. The global glut of oil and gas is expected to continue, she added. Oil and gas borrowers must repay or refinance more than $100 billion in debt over the next few years. As of Dec. 31, 2019, Chesapeake Energy, whose headquarters is in Oklahoma City, had approximately $8.9 billion in long-term debt outstanding. Gulfport Energy, also based in Oklahoma City, reported $2.177 billion in long-term debt as of Sept. 30, 2019. Halliburton’s long-term debt for the quarter ending Sept. 30, 2019, was $11.075 billion, a 6.25% increase year-over-year. The company was $1.13 billion in the red as of Nov. 10, 2019, according to MarketWatch. Halliburton is headquartered in Houston, Texas, but the company has a major presence in Duncan. Schlumberger’s long-term debt for the quarter ending December 31, 2019, was $14.77 billion, a 0.86% increase year-over-year. The company lost $10.1 billion in 2019, MarketWatch reported. Schlumberger has offices in Oklahoma City and El Reno. “In this environment, it is difficult to see a financial pathway forward for oil and gas producers,” Ms. Hipple said.