Linn Energy’s announcement that it has filed for Chapter 11 was significant in that its $8.28 billion in debt is the largest any upstream energy company has filed for bankruptcy in North America in 2016. However, it’s one of dozens so far this year and one of dozens more to come.Seventy-five companies have filed for bankruptcy since the downturn began. The expectation is that the number will climb to 150 filings before it’s over, according to Buddy Clark, a partner in the Houston office of Haynes and Boone LLP.
Source: Haynes and Boone predicts dozens more bankruptcies like Linn Energy – Houston Business Journal
Breitburn Energy Partners LP filed for chapter 11 bankruptcy protection Sunday, taken down by plunging oil prices.Business operations will continue while Breitburn negotiates a restructuring of its balance sheet, continuing talks with creditors that began a month ago, Chief Executive Hal Washburn said in a release.The decision to file for bankruptcy was made when it became “abundantly clear that those negotiations could not be concluded and an appropriate restructuring consummated on an out-of-court basis” in time to avert a cascade of defaults that would have squeezed Breitburn’s liquidity, James Jackson, chief financial officer of a Breitburn subsidiary, wrote in a court filing.Breitburn’s hedging assets, contracts that cushion the company’s cash holdings against price volatility, will be a central factor in restructuring talks, according to the court papers. The company estimates proceeds of its hedging agreements could be up to $500 million. Outside bankruptcy, hedges are “a significant source of liquidity.”In bankruptcy, however, a dispute is brewing with Breitburn’s senior lenders, many of whom are also counterparties to the hedge agreements. The company hopes negotiations will avoid litigation over the question of whether it is entitled to use the hedging proceeds, according to court papers. Meanwhile, Breitburn has come to terms with senior lenders on financing arrangements that will support normal operations in bankruptcy.The Los Angeles company joined a crowd of oil-and-gas firms in bankruptcy, including Linn Energy LLC, which also attracted investors with partnership tax benefits. In April, Breitburn suspended distributions to preferred investors and skipped bond interest payments.Distributions to common shareholders were cut, then suspended last year, as Breitburn took steps to get its finances in line with plunging oil prices.Citing the “prolonged decline in commodity prices,” Mr. Washburn said Breitburn’s existing debt is unsustainable. In papers filed in the U.S. Bankruptcy Court in New York, Breitburn reported assets of $4.7 billion and debts of $3.4 billion as of March 31.
Source: Breitburn Energy Partners Files for Chapter 11 Bankruptcy – WSJ
SandRidge Energy has joined scores of energy companies seeking refuge from the oil crash in bankruptcy court, becoming one of the largest U.S. shale drillers to succumb to the downturn.The Oklahoma City oil company is seeking Chapter 11 bankruptcy protection with a plan in place to turn $3.7 billion in debt to stock, it said Monday. It has about $4 billion in debt and $7 billion in assets, according to court papers.The firm, which has about 800 employees, plans to put up its oil and gas reserves as collateral for a $425 million loan and acquire another $300 million in debt that will at some point convert to equity. It said it would have enough capital to keep running its oil and gas operations, which are mainly in Oklahoma and Texas.“The new capital structure will allow the company to concentrate on oil and gas exploration and development in our active Oklahoma and Colorado project areas,” Sandridge CEO James Bennett said in a written statement.SandRidge’s filing comes as U.S. energy bankruptcies are accelerating, and it brings the number of North American oil company bankruptcies since the downturn began to 74, according to Dallas law firm Haynes & Boone.
Source: SandRidge Energy files for Chapter 11 bankruptcy | Fuel Fix
In its bankruptcy filing, Linn listed total debts of nearly $8.28 billion and total assets of more than $11.61 billion. That’s the most debt of any upstream energy company that has filed for bankruptcy in North America in 2016, according to data from Haynes & Boone.
Of the 11 North American upstream energy companies that filed for bankruptcy protection in April, nine of them filed in federal court in Texas.The month of April saw a surge of activity, with more Chapter 11 filings involving more debt than any month since January 2015, according to a report from Haynes & Boone law firm.
Source: Haynes & Boone report shows nine Texas energy companies filed for bankruptcy in April – Houston Business Journal
At its annual investor conference in San Francisco in May 2014, with oil trading at $102 a barrel, Wells Fargo & Co. boasted that in just two years it had almost doubled its energy exposure and seized the title of Wall Street’s top oil and gas banker.The timing couldn’t have been worse. Crude prices peaked a month later and have since plummeted to $40. Wells Fargo has downgraded 38 percent of its energy loans and set aside $1.2 billion to cover potential losses, according to company filings. The loans are coming under increasing scrutiny from regulators and investors, even though they make up only 2 percent of the bank’s portfolio.
Source: Wells Fargo Misjudged the Risks of Energy Financing – Bloomberg
The clock is ticking ever louder for heavily indebted oil and gas companies, as well as for the banks with the highest ratios of energy loans. Many of these energy and financial services stocks are so deeply in the hole, they’ll remain toxic investments throughout the year, even if oil prices rebound.After a brief rally that fueled hopes of a lasting turnaround in the energy patch, oil prices tumbled again last week as supply glut fears returned. On Friday, West Texas Intermediate (WTI), the U.S. benchmark, closed at $39.46 and Brent North Sea Crude, the international benchmark, closed at $40.44. Both were down about 2.4% for the week, though still substantially higher from levels below $30 per barrel posted earlier in the year.The main culprit: the U.S. Energy Information Administration reported that crude oil reserves rose for the sixth consecutive week last week, marking another new record. Exacerbating oversupply concerns was a report from Baker Hughes (BHI – Get Report) showing that the U.S. lost 12 rigs during the week ending March 24, as drillers cut oil and gas rigs for the 14th straight week.Not surprisingly, energy sector operating results in the fourth quarter were ugly across the board. Exemplifying the earnings carnage this month was Petróleo Brasileiro S.A. – Petrobras (PBR – Get Report) , which reported its biggest ever quarterly loss of $10 billion in the fourth quarter of 2015, due to asset write-downs and massive debt.With refining overcapacity likely a problem for the next half-decade, energy companies that over-expanded at the most reckless pace are now paying the piper. If prices stay low and economic indicators turn sour, the energy industry will see a wave of defaults and bankruptcies that will weigh on the broader markets.The following energy companies, listed with their one-year stock declines, are among the most distressed stocks on the market right now, as they get caught in a tightening vise of plummeting revenue and rising debt obligations:Linn Energy (LINE – Get Report) (-96.03%); Chesapeake Energy (CHK – Get Report) (-70.11%); SeaDrill (SDRL – Get Report) (-67.50); Marathon Oil (MRO) (-60.99%); Anadarko Petroleum (APC) (-44.39%); Transocean (RIG) (-38.81%); and ConocoPhillips (COP) (-36.69%). Over the past year, the Energy Select Sector SPDR ETF (XLE) has fallen 19.72%.Analysts expect at least 500 energy companies to go bankrupt in 2016, as meeting debt obligations becomes impossible. Indeed, troubled companies such as Chesapeake are compelled to continually deny rumors that the company is about to go belly up.
Source: Week Ahead: Energy Sector’s Debt Bomb Ready to Explode – TheStreet
The timeline for recovery in the energy market is what everyone wants to know and few dare to predict, but one well-known Houston energy leader peered into his crystal ball at the 2016 IHS CERAWeek conference — and it’s not great.”I would predict in the next six to 12 months, you’re going to see a decimation of the industry — just bodies (companies) all over the place — a lot of bankruptcies, Chapter 7’s and Chapter 11’s,” said Mark Papa, former chairman and CEO of Houston-based EOG Resources Inc. (NYSE: EOG). Papa is also currently a partner in New York-based Riverstone Holdings LLC, a private equity firm with offices in Houston.
Source: Former EOG CEO Mark Papa: Oil industry to go through ‘decimation’ – Houston Business Journal
Despite the obvious pain in the energy sector for the last 18 months, major asset sales have been few and far between in the sector. The problem has been a classic one in markets – sticky prices leading to a wide gap between supply and demand in assets.Oil companies looking to shed assets either to become more efficient or because of financial distress have been holding out for higher prices under the expectation that oil prices would bounce back soon, creating significant option value in underwater assets. Buyers like private equity firms have been considerably less sanguine though, and have essentially only been willing to pay fire sale prices for most assets.This gap in expectations has hindered asset sales from companies like Chesapeake, Quick Silver Resources, Swift Energy, Magnum Hunter, and others. Even in bankruptcy, many firms have found out that their assets are worth less than the debt on those properties. This has led to banks like JPMorgan and Citi holding the bag on assets that have values far less than what the banks had lent to the bankrupt firm. Those banks are motived sellers and will likely keep the market for energy assets depressed for at least a year. Of course for investors with a long-term time horizon like Blackstone or KKR, this could create a major opportunity. Yet private equity firms are being very disciplined with their capital and are only slowly starting to enter the market for such assets.2016 could be the year that this reticence on the part of buyers starts to ebb though, as sellers may be forced by bankruptcy conditions to relent and accept whatever price they can achieve. Wood Mackenzie recently put out a report suggesting that M&A activity in the oil patch will ramp significantly this year regardless of what happens to oil prices.
Source: Firesale In Energy Assets | OilPrice.com
Texas business bankruptcies jumped significantly in 2015, but lawyers and financial experts say last year’s increase is nothing compared to the tidal wave of corporate failures headed this way.Bankruptcy courts in South and West Texas saw the number of companies filing for protection under Chapter 11 of the U.S. Bankruptcy Code increase 37 percent and 65 percent, respectively, last year, according to new data provided by Androvett Legal Media.Financial and legal advisers who specialize in corporate restructuring say they have been hired during the past few weeks by scores of additional Texas businesses — most of them in the oil and gas sector — to explore their bankruptcy options.Eighteen prominent bankruptcy experts interviewed by The Texas Lawbook say that they expect the number of oil and gas companies in Texas that file for bankruptcy in 2016 to double, and that those bankruptcies will cause a domino effect that will spread to other business sectors.“The carnage is going to be terrible and widespread unless oil prices rebound quickly,” said William Snyder, head of restructuring at Deloitte in Dallas. “Bankruptcy filings are going to double.”Snyder, who is viewed as one of the nation’s leading bankruptcy experts, said Deloitte has an additional 75 oil and gas companies on the accounting firm’s danger list — companies, he said, that are “running out of cash.”“Everyone is panicked,” he said. “We are going to see some gigantic companies filing that no one even suspects.”Forty-eight oil and gas service companies and exploration and production companies filed for bankruptcy during the last 13 months — nearly all of them upstream exploration and production companies or oil and gas service companies, according to a report issued by the law firm Haynes and Boone.To make matters worse, there’s growing concern that new legal tactics being argued by lawyers for bankrupted exploration and production corporations will cause the financial distress to spread more quickly to midstream companies, which had previously been viewed as less vulnerable to the economic downturn.The distress will “expand beyond oil and gas companies to other business sectors” in Texas, including manufacturing, industrial, commercial real estate and even retail, said Eli Columbus, a partner in the bankruptcy section at Winstead in Dallas.As a result, most of the large Texas law firms are beefing up their bankruptcy practices.
Source: Texas business bankruptcies may double: ‘The carnage is going to be terrible’ | Dallas Morning News