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Good News About Oil Company Bankruptcies

Discussions about the economic and financial ramifications of PEAK OIL

Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Fri 28 Jul 2017, 00:52:28

Latest update I could find: May 2017. Sounds like there won't be much to add to this tread in the future. Given the total debt involved in the bankruptcies so far is $80 billion compared to the $1 TRILLION in debt someone claimed the industry took on in recent years two aspects seem clear. First, the vast majority of that debt is being serviced sufficiently enough to avoid bankruptcy. Second, since that huge debt obligation is being met the industry obviously hasn't been as big a money loser as some have claimed.

Those negative ninnies can't have it both ways: if the oil patch did borrow that much capex and spent it on so many money losing projects we should have seen many 100's millions drawn into bankruptcy and not just the 8% we've seen so far. Especially since so few are being filed now:

Texas oil bankruptcies down to a trickle even as oil prices slide

"When oil prices bottomed out last year, it led to waves of bankruptcies, nearly half of them filed in Texas. The current recovery — a hesitant one — has slowed the courthouse filings to a trickle. Haynes and Boone’s latest Oil Patch Bankruptcy Monitor report found just two bankruptcies in April and only nine so far this year, including four in Texas.

The Haynes and Boone report has tracked 123 oil and gas company bankruptcies involving $80 billion in debt since 2015. "Many of the overleveraged oil and gas producers sought bankruptcy protection earlier in the current down cycle and have already addressed their financial issues,” said Ian Peck, chairman of Haynes and Boone’s bankruptcy and business restructuring section, in a written statement. “Of course, the continued depression in commodity pricing has resulted in a sustained, albeit relatively slower, trickle of North American bankruptcy filings.”

More at

https://www.dallasnews.com/business/ene ... ices-slide
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Re: Good News About Oil Company Bankruptcies

Unread postby coffeeguyzz » Fri 28 Jul 2017, 11:45:23

RM
I think you did an outstanding service in compiling and posting this info for all to see.

I'll briefly followup on one aspect of this huge capital outlay this past decade in the Bakken, Eagle Ford, Marcellus, and Niobrara regions ... namely, the build out of a vast infrastructure to facilitate hydrocarbon production for decades to come.

Rune Likvern had periodically posted a one frame graphic dramatically displaying the big differences in free cash flow versus accumulated debt for a group of select operators in the Bakken.
Rather than conveying a damning narrative of misappropriation, that graphic 'told the story' of transforming near-empty rangeland the size of New Jersey into a million barrel a day oil region in just a few years time. This, in a remote area of the country subject to the fiercest of weather conditions.

I well realize the fossil fuel haters, the Malthusians of all stripes will continue to both revile these achievements and willfully recoil from the obvious effects this "shale revolution' has wrought, but your focus on this area of the financial aspects is a welcome explanation of how these guys, once again, got the job done.

Thanks for your time and efforts.
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Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Fri 28 Jul 2017, 12:48:10

Coffee - No problamo, compadre. And to expand on Coffee's point about sunk infrastructure costs: two oil pipelines that once carried imported oil from the port of Corpus Christi to the San Antonio area were reversed. That greatly reduced the transportation cost of getting Eagle Ford Shale production to both domestic and foreign refineries. And then there's also the sunk cost of converting the Corpus C import facility to an export depot. Those two projects ran into the hundreds of $millions. And not only improved the economics of past EFS production but more important: gives a bit of an economic boost to future drilling efforts offsetting (just to a degree) the negative effect of the lower oil price.

Same true for the drilling and frac'ng equipment expansion that was based on high daily rates justified by high oil prices. Now, with activity down, much is underutilized which has resulted in much !lower daily rates. For instance some direction drilling assemblies that were going for $24,000/day: 12 months ago I had it bid to me for $8,600/day. Rigs that were going for $18,000/day can be had for $10,000/day. And those service companies have already recovered the costs of that equipment during those priced years. Which is why most are still profitable at the lower rates. Just not as much as during the height of the boom.
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Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Tue 01 Aug 2017, 15:54:03

So much emphasis on E&P company bankruptcies I figured so news about the service industry side was due. Here's one of the largest to date. Notice it wasn't the creditors that walked away with nothing... they essentially now own the company. It was the shareholders that got wiped out. From March 2017:

"Ocean Rig has filed for bankruptcy in the United States that will help it to work out claims from stakeholders in multiple countries. Ocean Rig says that it has already reached a complex restructuring agreement covering about three quarters of the firm's outstanding debt. Its largest creditors will swap $3.7 billion in outstanding principal for new equity, plus $450 million in new secured debt and a cash payment of $288 million. Existing shareholders will be effectively wiped out, “diluted to an insignificant amount of the post-restructuring equity of the company,” and management will receive about 9.5 percent of the newly issued shares.

Ocean Rig is taking the appropriate steps to allow us to emerge as a much stronger company that can take advantage of opportunities as they emerge," said Ocean Rig's CEO and chairman. He emphasized that he remains committed to maintaining Ocean Rig as a going concern; the firm appears well-positioned as a competitor in its restructured form, with an enviable debt-to-equity ratio and a fleet of modern, high-specification drillships."

So again the hyperventilated ramblings that the various oil patch bankruptcy filings signaled the beginning of the end of the oil patch missed the mark a tad. LOL.
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Re: Good News About Oil Company Bankruptcies

Unread postby baha » Tue 01 Aug 2017, 19:05:10

Thank you Rockman,
TPTB at work...The big money holders get 'restructured' while the share-holder gets wiped out. Does anyone wonder why the system is rigged?

Again, take responsibility, and make your own way. Then this stuff is only cause for popcorn :)
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Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Tue 01 Aug 2017, 19:56:55

baha - "The big money holders get 'restructured' while the share-holder gets wiped out." I'm not sure who you mean by the "big money holders"? In the case of this company the shareholders were the "big money": at its peak those shareholders owned $2.5 billion in stock. Now those "big money holders own less then $1,000 of the company. The creditors now own 99.9% of the company, get a check for $450 million and a payment of $288 million guarernted by the bankruptcy court.

The stock is now worth 23¢/share compared to $18/share at the peak. And the new shareholders (former creditors) own a fleet of state of the art Deep Water drill rigs and have no debt payments other the the $288 million they'll be paying them selves out of future revenue. Once the start picking up new drilling contracts the stock price will increase. If it goes to just $1/share the value of their stock will increase 4X.

Bottom line: the original "big money holders" got slaughtered and those poor little creditors are now the potential "big money holders".
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Re: Good News About Oil Company Bankruptcies

Unread postby baha » Tue 01 Aug 2017, 20:43:46

I'm sorry RM, I've said before I don't understand finance...
It seems to me the big money is at the banks "the creditors". The share holders are just pee-ons. The banks may only have a fraction of their investment left but the pee-ons have nothing except misplaced hope.

That's the rub...the banks can loan money on risky investments and if it fails, they own it. The share holder just hands over his shirt.
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Re: Good News About Oil Company Bankruptcies

Unread postby rockdoc123 » Tue 01 Aug 2017, 21:03:05

It seems to me the big money is at the banks "the creditors". T


It isn't the same in every case but in general lets look at a scenario.

Company A is publicly traded with both common shares and pref shares outstanding and widely held. They have very little in the way of loans with a small outstanding balance held by Bank A who also holds common shares and a few pref shares which they obtained through the original equity raise by the company. The company conducts business as most do retaining services and paying for those services under the normal 90 day invoice to payment expectation. They also hold some obligations to service providers where they received service at discount rate for guaranteed future business at that rate.
Now Company A is screwed they seek creditor protection and the courts issue the final order of bankruptcy. So who gets what? The banks? No. Generally the first in line is the outstanding creditors which are those service companies who were owed fees. The courts rationale here is that investors (including the banks) knew they were taking on a risk when they invested whereas the service companies did not, they expected fair pay for fair work. After them it is generally any outstanding loans that would be paid out and then pref shares and finally common shares. Obviously by the time you get to pref and common shares there likely isn't anything left but that means the banks are also screwed, not just Joe Average shareholder.

And the service companies who end up with rigs and other assets? My guess is most of them would rather have just been paid.

Now in the case of companies who have very large outstanding loans to banks those banks could easily call that loan under default and cease the oil and gas properties but they seldom do. Why? Simply because they are a bank and not an oil and gas company. They aren't set up to run an oil and gas business and they already know that by the time they sell the properties for pennies on the dollar they will have expended a bunch of money just to keep the company afloat. That is why banks usually bend over backwards to help companies in trouble out...win win scenario. Not always the case, of course, and banks do end up with assets from time to time but it certainly isn't their preference.
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Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Tue 01 Aug 2017, 22:07:13

baha - I'm not sure how much of the debt was with banks or warrant holders. Couldn't find those numbers. But did find an interesting analysis. Also in 2016 they bought a top of the line drill ship for $65 million...way below normal market value. But a drill ship without contracts is a money sink. This is way above my pay grade...maybe Doc can explain. I may be wrong but it almost sounds like management engineered a scernario to lead them into bankruptcy. From:

https://seekingalpha.com/article/404957 ... s-comments

"ORIG management has a more negative market outlook than its competitors. Cold stacking half the modern fleet is completely out of the norm. That preserves cash in the short term but either results in lost revenue opportunities when the market recovers or requires premature high reactivation costs. But the company will get two additional new class 7 ships after 2017 for which final payment is delayed by 5 years.
Management's actions are difficult to understand. Recurrently creating strong fear among investors and, as a consequence, decimating the stock price is not an intelligent strategy if equity for debt swaps are intended. Making radical write downs of the assets is not a plausible strategy if the assets are intended to secure debt. Paying 100% for bonds at maturity when they could have been bought at half price seems odd.
CEO George Economou has nothing to gain from Chapter 11. Share dilution is a much more likely scenario. I am quite sure that management intends to have a higher cash level at the end of 2017 than projected here. The company could have achieved that by continuing buying back the 2017 bonds. A further repurchase of bonds for 200M at a 50% discount would have boosted year end cash by $100M compared to the number in my table. With the amount of bonds under control, most likely exceeding the consensus threshold, the company could than have offered the remaining bondholders a cash + shares or cash + shares + semi-subs deal that could have boosted year-end cash to $600M.

A variant of that scenario could still be played out, if somebody associated with the company had acquired the mentioned bond volume. In that case, a shares for debt swap deal risks to be significantly more dilutive for existing shareholders. Such a shares-for-debt option seems to be facilitated by the bond covenants, which specify that the bonds are secured by the company's shares (not by the company), besides the 2 semi-subs. Anyway, it's very likely that ORIG intends to keep a high cash level by limiting the cash part of the 2017 bond repurchase.

A resulting net debt level of around $2.5B is close to DO's level. With DO owning 7 modern floaters and several revamped 40 year old semi-subs compared to ORIG's 9 + 2 modern ships + 2 harsh environment semi-subs.

Based on current contracts, the ships belonging to the 2 bank facilities will generate enough cash to pay for debt obligations until maturities in 2020 and 2021, but cash flow is unevenly shared. The banks behind the facility with negative cash flow will certainly require a better cushion. ORIG could try to satisfy that by forking over cash and assets not burdened with debt like the Paros and the Apollo (free by mid-2018). The results of the SDRL restructuring will be instructive in that regard.

Disclosure: I am/we are long ORIG.
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Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Thu 03 Aug 2017, 10:45:03

Mr. baha brought up a pertinent point elsewhere concerning banks et al taking possession of companies via Chapter 11. My response will hopefully clear up confusion in others as well:

baha: "I see that as an indication of the diversification movement. No one wants to buy and own these assets so the banks are stuck with them. It may turn out ok for them, it may not.

I am hoping all the hopium and bad loans involved in the fracing industry will take down, not just the industry, but the stupid bankers who have no vision and just see dollar signs...Like I said, there are all going to be standing around with a stupid look on their faces wondering what happened."

Rockman: "No one wants to buy and own these assets so the banks are stuck with them". Actually the banks et al aren't taking ownership of the reserves/operations. They are owning stock in those companies. And that stock can be sold at anytime they want to liquidate their position. The management/staff is still taking care of day to day operations. So it's no different then banks/hedge funds et al taking stock positions in other companies. Same situation with Halcon."

More at when-a-big-lasting-oil-shortage-will-happen-t3354-20.html

Only time will tell but the Ocean Rig and Halcon creditors may eventually make a better profit from the Chapter 11 settlements then they would have from those loans. At the very least they've replaces a nonperforming asset in their books into a positive asset. That's a very powerful change for a publicly traded bank.
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Re: Good News About Oil Company Bankruptcies

Unread postby baha » Thu 03 Aug 2017, 14:48:37

I know, I am just demonstrating my ignorance in these matters. I take a very seat-of-the-pants view of it all. Which is why I would rather be in the company (staff) than own the company. Just pay me to build things and I am happy :)
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Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Fri 04 Aug 2017, 01:13:30

baha - But you are very correct about banks not wanting to take over operations. They don't have the staff to handle it and would have to pay a contract operator to run things. Essentially dumping more in after bad. A bank will agree to almost any deal that avoids direct ownership of wells. We never see the details but in cases where the bank gets stock in the new company I wouldn't be surprised if some at settling for 10¢ to 20¢ on the dollar. Anything but taking over operations. A old oil patch say: Owe the bank $100,000 and they got you by the balls. Owe them $20 million collateralized by producing wells and you have the bank by the balls. LOL.

For instance a banker called me up with a great deal almost 2 years ago. A struggling company was producing 900 bopd (which is a very attractive volume) and owed the bank money. Had hopes I might want to buy it and assume the loan. A totally rediculous proposal: the 900 bopd was coming from 300 wells and they owed the bank $55 million. I did a very quick analysis: I wouldn't buy the field for $1...and that included not paying that bank 1¢ on the loan. Part of the analysis includes calculating the cost to eventually plug and abandon those 300 wells. And that cost was more then the oil production was worth.

Who ever let the bank make that loan deserved to be fired. I doubt it was a reasonable risk even when oil was $90/bbl. They would have run a negative cash flow if they had to pay a contract operator to manage the property. Not sure what happened but I suspect the company just walked away and let the state seize the wells. Maybe the state was able to give them to a local stripper operator or maybe had to pay to abandoned the wells. Either way I'm sure the bank didn't get $1. But the good news: by not owning the wells the bank had no liability.
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Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Tue 08 Aug 2017, 14:18:49

And how does a company increase the price of its stock from $1 to $25 a share in just several days? Easy: just file bankruptcy. Not exactly the "beginning of the end" for this drilling contractor. LOL. From August 1:

Tidewater's new stock climbs from the open after company emerges from bankruptcy

The new shares of Tidewater Inc. TDW, began trading on the New York Stock Exchange Tuesday, after the provider of offshore service vessels for the energy industry emerged from bankruptcy. The stock, which was listed under the same ticker symbol of "TDW" as it was before the emergence from bankruptcy, changed hands at $24.82 in morning trade, up 18% from an opening trade of $21. The stock had closed Monday at 93 cents. Through its bankruptcy, the company was able to eliminate $1.6 billion worth of debt, and cut annual interest and operating lease expenses by $73 million. "The company believes that its substantially deleveraged balance sheet positions it for long-term success for the benefit of all of its stakeholders," Tidewater said in a statement released Monday."

"...deleveraged balance sheet". That's a nice antiseptic phrase, eh? LOL. And if I read correctly the creditors got no stock in the company: just a guaranteed cash payment and some new notes.

http://www.marketwatch.com/story/tidewa ... 2017-08-01

Imagine: had you bought $5,000 of the stock you could have sold it for $125,000 about a week later. Which is why these C11 settlements are kept very secret until they pull the trigger. But I suspect at some point before the details were released trading was suspended. But you probably could have bought all you wanted a few months ago. If you had the nerve to take the risk. LOL.
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Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Tue 08 Aug 2017, 14:39:17

So who is in the mood for a high risk investment that bring a rate of return in the 1,000's of %?

Houston's Pacific Drilling said Thursday it's considering filing for Ch. 11 bankruptcy protection as the company teeters on the edge of defaulting on loan agreements at the end of September.

More at http://www.chron.com/business/energy/ar ... 731674.php

It peaked at over $1,100/share in 2013. Currently trading at $0.83/share.
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Re: Good News About Oil Company Bankruptcies

Unread postby marmico » Tue 08 Aug 2017, 18:58:50

had you bought $5,000 of the stock you could have sold it for $125,000 about a week later.


No. The new common stock was a 1 to 31 exchange ratio* with the existing common stock. 310 shares @$0.93 (closing trade pre-bankruptcy) or $288 became 10 shares @ $21 (opening trade post-bankruptcy) or $210 which is ~27% loss plus some way-out-of-the-money warrants.

*With respect to holders of Existing Stock as of the Effective Date, the Plan provides that they will receive, in the aggregate, 1.5 million shares of New Common Stock, representing 5% of the Effective Date Shares. This is the equivalent of an approximate
1-for-31.4143 exchange ratio (1 share of New Common Stock for every 31.4143 shares)

http://dm.epiq11.com/#/case/tidewater/info
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Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Wed 09 Aug 2017, 06:42:15

Thanks Marm. I suspected something like that but couldn't find details. I figured my post would catch someone's attention.
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Re: Good News About Oil Company Bankruptcies

Unread postby marmico » Wed 09 Aug 2017, 06:57:46

TANSTAAFL. :)
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Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Fri 11 Aug 2017, 12:47:57

This relates indirectly to the future of the US energy industry. The connection between the petroleum industry and economic growth (and weakness) has been well established. If some major sector of the US economy, like retail, is heading for trouble it could have a negative impact on demand. We have a significant number of the population working at the lower end of the income pyramid. Unemployment increases there could have a meaningful impact on the energy sector.

I posted the huge number of bankruptcies filed by other business sectors compared to the petroleum industry. But ran across this interesting stat about personal bankruptcy filings. While the vast majority of oil patch filings going the Chapter 11 restructuring route most individuals went with Chapter 7...complete surrender of property and liquidation:

"Here’s how the almost 800,000 personal bankruptcy filings broke down in 2016:

Almost 500,000 filed for Chapter 7
296,655 were Chapter 13;
7,292 were Chapter 11;
461 were Chapter 12.

Chapter 7 is one of the most popular ways individuals can file for bankruptcy (the others are Chapter 13 and 11), while businesses can file for Chapter 7 or 11 to reorganize. Less common are Chapter 9, when municipalities need to reorganize; Chapter 12, which provides debt relief to family farmers and fishermen; and Chapter 15, which involve parties from more than one country.

Chapter 7 is often the preferred filing because it involves no repayment of debt. While a debtor must be prepared to lose property and/or subject it to liens and mortgages, their bankruptcy trustee will take care of gathering and selling any nonexempt assets and use the proceeds to pay creditors back. Most people who file bankruptcy can use exemption laws to their benefit and retain their property.

And here's a neat trick at least in Texas: your home is exempt from being taken in C7. Years ago read about a guy that liquidated all his assets and used every penny he had to buy a $2.5 million home for cash. Then filed C7, kept the home and eliminated all his debt, the sold his $2.5 million home and bought a cheaper home. Not sure if they ever put a cap on the value of the homestead but I don't think so.

Also: 60% of the corporate bankruptcy filings in 2016 WERE NOT in the energy sector. And the future? From

From a risk-of-bankruptcy standpoint, the retail business is the new oil and gas

"Retail is set to replace the troubled energy sector as the most distressed sector this year, according to ratings agencies, lawyers and analysts, beaten down by the strain of competition from juggernaut Amazon.com."

More at

http://www.marketwatch.com/story/retail ... 2017-02-15
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Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Mon 14 Aug 2017, 15:27:32

OK, that's been a lesson on how bankruptcy can be both good news and bad news for the petroleum industry. Now let's switch gears to solar. In this case should the govt decide if some panel manufacturers should go under or be saved? And if saving those companies financially damages other US solar companies are we back to the old nightmare of the govt picking winners and losers? In this case both the winners and losers would be companies working towards increasing solar power in the US. From

https://insideclimatenews.org/news/1408 ... e-industry

"Two bankrupt solar panel manufacturers are asking the U.S. government for tariffs on imports, imports U.S. solar installers rely on.Would an intervention by Washington to save this industry end up destroying it? That's the question confronting the solar industry as the U.S. International Trade Commission meets this week on a petition to protect domestic manufacturers with tariffs on solar panel imports and price supports."

{Some what different then US bankruptcy laws allowing damaged petroleum companies to survive and potentially prosper. In those situations the damage is inflicted on investors and/or owners...not other petroleum companies.}

"The commission will hear competing views at a meeting on August 15 and has said it will make a preliminary ruling in late September on whether the petitioners, a pair of domestic manufacturers that have filed for bankruptcy, have been so badly injured by imports that they need relief. The trade petition was filed after Suniva, which had been taken over by a foreign firm, filed this year for bankruptcy; it was joined by SolarWorld, another foreign-controlled and bankrupt company."

BUT: "Most of the rest of the domestic solar industry—including some other manufacturers but mainly those who install and finance solar gear and can thrive on cheap systems from abroad—is lined up against the petition. Their business has been booming as costs have steadily declined, making it easier for consumers, businesses and power companies to shift from fossil-fuel electricity."

Well, the R's and D's have finally found something they can agree on: "On Friday, a bipartisan group of senators sent an open letter to the ITC urging the commission to reject the petition. "Increasing costs will stop solar growth dead in its tracks, threatening tens of thousands of American workers in the solar industry and jeopardizing billions of dollars in investment in communities across the country," the senators wrote.

{And back to the govt picking winners and losers: "SolarWorld has gotten a whopping $115 million in federal and state grants and tax subsidies since 2012, according to the Union-backed group Good Jobs First. And that’s on top of the nearly $91 million in federal loan guarantees the company got during that time."

And the other company: "Suniva blamed its bankruptcy on competition from cheap Chinese-made solar panels, but the company received about $20 million in support from federal and state taxpayers, according to the Atlanta Journal-Constitution."

And from what the Rockman has found the Chinese are not "dumping" solar panels into the US market place. Dumping is selling below production costs. The Chinese are not doing that: they are providing quality products and making a profit doing so. Also one report highlighted a huge blunder on the part of the US panel makers: they focused on small scale residential application and the Chinese on large scale commercial products. And 80% of the market is the commercial projects.
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Re: Good News About Oil Company Bankruptcies

Unread postby asg70 » Mon 14 Aug 2017, 18:11:29

ROCKMAN wrote:should the govt decide if some panel manufacturers should go under or be saved?


I take it you have a "let them fail" attitude over solar? How convenient for someone whose living relies on the health of fossil fuel industry. How did you feel about the GM bailout?
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