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Good News About Oil Company Bankruptcies

Discussions about the economic and financial ramifications of PEAK OIL

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Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Sun 16 Jul 2017, 20:05:14

Doc - "My experience in small companies I have been involved in is that you do absolutely everything you can to avoid filing..." Apparently the 240+ companies that have filed Chapter 11 are different then the companies you've crossed paths with. LOL..

As far as service companies refusing to do work for someone who had worked for a company that had filed bankruptcy: a company can't even do that to a company that owed the service company that had burned them for hundreds of $millions. I'm sure you remember Jack Stanley. He tried to corner as much NG in S Texas as possible. The entire scheme blew up in his face. Which led him to a place in the Guiness Book of Records: the largest PERSONAL filing of bankruptcy in history at that time. While in Chapter 11 Halliburton, for which he was burning for a huge debt, refused to do any work for the company. The bankruptcy judge told Halliburton it had to or they would be charged with restraint of trade. But the judge guaranteed they would be paid in full for the new work.

I've personally seen a number of managers that ran their companies into bankruptcy and then watched their future careers flourish.
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Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Mon 17 Jul 2017, 11:17:45

Damn, just found some very bad news for some oil company investors almost as bad as the money lost: some will have to pay taxes on those debts eliminated by bankruptcy as though it were income. IOW pay taxes on money they never received. From:

https://www.law360.com/articles/854926/ ... ax-burdens

"Investors who own shares in companies and partnerships that are suffering from the hard times in the oil patch will face an even bigger headache thanks to the tax consequences of the price drop. The problem — essentially a situation that requires investors to book income for tax purposes and to pay hefty federal taxes even though they don’t actually receive any cash...a direct result of the ongoing restructuring of...debt.

"Many oil production ventures are structured as limited partnerships or are taxed that way...it allowed income to flow directly to investors without the double taxation that would kick in if the ventures were organized as corporations."

"...investors, who are now learning to their chagrin that they may owe significant taxes on the dollar amount of forgiveness of the partnerships’ debt that can accompany a bankruptcy or an out-of-court restructuring...federal tax law requires that their owners pay income tax on their share of the partnership’s debt that was forgiven by creditors in the restructuring. This is true even though the investors may have received no actual cash income as a result of the restructuring transaction. And it’s true for all types of entities that are taxed as partnerships — including master limited partnerships and limited liability companies."

IOW imagine if you are a 10% partner of a company that has $1 billion of debt reduced by a Chapter 11 bankruptcy. You may now be required to pay taxes on $100 million as income even though you never saw a penny of it. I wonder how many brokers that sold investors on a limited partnership warned them of this possibility? Well, it's probably there...in the fine print at the bottom of Page 20. LOL.
Last edited by ROCKMAN on Mon 17 Jul 2017, 11:42:23, edited 1 time in total.
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Re: Good News About Oil Company Bankruptcies

Unread postby rockdoc123 » Mon 17 Jul 2017, 11:37:57

While in Chapter 11 Halliburton, for which he was burning for a huge debt, refused to do any work for the company. The bankruptcy judge told Halliburton it had to or they would be charged with restraint of trade. But the judge guaranteed they would be paid in full for the new work.


different situation than what I proposed. In the case you point to the individual was under court ruled protection....service companies can't refuse to work but are generally given a guaranty of payment. What I suggested is once that individual moves on somewhere else any of the service providers that got stiffed through his previous court relief will not be lining up for work with his new firm, there is no requirement for them to do so either. In a similar vein it affects your ability to raise capital and retain partners. The companies I had involvement with always dug pretty deep on the backgrounds of main players in companies we did business with and any who had previously gone the Chapter 11 route were immediately redflagged, the thought being there was some risk that they would not be able to pay their way.
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Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Mon 17 Jul 2017, 11:49:36

Doc - True. And now that I thunk on it a bit it might have been Schlumberger and not Halliburton.

But I know guys with hungry service companies today that would still do business with someone that raped their favorite dog. LOL.

It ain't personal...just business.
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Re: Good News About Oil Company Bankruptcies

Unread postby pstarr » Mon 17 Jul 2017, 13:20:51

ROCKMAN wrote:IOW imagine if you are a 10% partner of a company that has $1 billion of debt reduced by a Chapter 11 bankruptcy. You may now be required to pay taxes on $100 million as income even though you never saw a penny of it. I wonder how many brokers that sold investors on a limited partnership warned them of this possibility? Well, it's probably there...in the fine print at the bottom of Page 20. LOL.

Sounds familiar, just like the hapless "investors" who bought into the "broker's" subprime mortgage scam. But aren't you doing the same right here, at this forum RM? Minimizing the risks to keep the game afloat. You should have known about that fine print.

Both sides are the same. The brokers and the investors don't want to hear the truth. Sleep better at night that way. No responsibility. :cry:
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Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Mon 17 Jul 2017, 15:03:36

pstarr - "...aren't you doing the same right here, at this forum RM? Minimizing the risks to keep the game afloat". The Rockman??? Hell, buddy. I think your prejudice ruins your ability to see what's right in front of your eyes: for years here and at the Oil Drum the Rockman has been one of the most credible AND EXPERIENCED sources of negative information about the petroleum industry.

Just consider what I just posted about some investors getting slammed with huge tax burdens as a result of Chapter 11 filings. You and the other knee jerks here are so biased you have difficulty seeing how I muster educated you on another bit of our dirty laundry. LOL. Just like Graeme when I repeated pointed out that delaying the border crossing permit of the Keystone XL pipeline wouldn't inhibit imports...and it didn't. Or folks here who continue to repeat the lie that the industry has been restricted from exporting oil....which I proved countless times to the govt's own data base. Or how dumping of frac fluids by unscrupulous disposal companies was the primary cause of that pollution and not the actual frac'ng operation. I've explained in great detail how Texas came to have world class alterative energy and that it had nothing to do with "saving the environment" because the vast majority of Texans supported wind power development purely due to their financial interests.

None of those and countless other stories about negative oil patch activities exactly qualifies me as a big cheerleader for the industry, does it? But it's impossible for you and a small minority here to see it.

But most others get it. LOL. Which is why the thread THE ROCKMAN CREATED exposing that dirty little secret about bankruptcy filings (unknown by the vast majority here) got over 2,500 views in just a week.
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Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Tue 18 Jul 2017, 22:57:33

OK, this will take absorbing the long link below.

http://www.ogfj.com/articles/print/volu ... tcies.html

Too much to summarize but here's a pertinent portion of the report titled: "Rising oil prices may mean more bankruptcies"

"Private equity investors and other sophisticated parties (such as institutional bondholders) understand that rising commodity prices are an opportunity and that Chapter 11 bankruptcy may provide the means to take control of the debtor and to maximize the future upside value that will be realized if prices continue to rise."

As an example recall the story of Halcon. After the Chapter 11 agreement with the creditors 96% of the stock was transfered to those creditors. This eliminated more then $1 BILLION in debt and produced an $600 million asset based credit line. The new owners/creditors then sold Bakken assets for $1.4 BILLION which produced an 18% increase in stock value. The 96% of the stock now owned by the former creditors.

And what is Halcon up to these days? Getting heavy into the Permian Basin which has become red hot in the last year. Subject to how that effort turns out and oil/NG prices in a few years the value of that 96% of the stock might be several times larger then the debt it was traded for.

That's what the report explains: a developing incentive for creditors to push damaged companies into Chapter 11 "debtor-in-possession" reorganizations. And the great advantage the former creditors have available:

"Debtor-in-possession financing or DIP financing is a special form of financing provided for companies in financial distress, typically during restructuring under corporate bankruptcy law, such as Chapter 11 bankruptcy. Usually, this debt is considered senior to all other debt, equity, and any other securities issued by a company — violating any absolute priority rule by placing the new financing ahead of a company's existing debts for payment.

It may be used to keep a business operating until it can be sold as a going concern, if this is likely to provide a greater return to creditors than the firm's closure and a liquidation of assets. It may also give a troubled company a new start, albeit under strict conditions. In this case, "debtor in possession" financing refers to debt incurred while in bankruptcy, and "exit financing" is debt incurred upon emerging from reorganisation under bankruptcy law."

Which explains how Halcon, a busted company, probably got a brand new shiny $600 MILLION credit line.
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Re: Good News About Oil Company Bankruptcies

Unread postby ROCKMAN » Fri 21 Jul 2017, 01:26:11

Just more examples of the oil patch bankruptcy filings are good news for the sector compared to the BS put out by some of our local armchair warriors. Of course, not good news for many of the folks they had loaned money to the industry. A variety of reports are crediting the new borrowing capabilities of post Chapter 11 filings for much of the projected increase in industry capital spending late 2017 and throughout 2018. Just the opposite of what the whiners were predicting. From Oct 2016:

Bankruptcy Rebound? Oil, Gas Companies Bounce Back from Chapter 11

"Goodrich Petroleum Corp. has emerged from bankruptcy with the same assets in place, a significantly improved capital structure and substantially less long-term debt.

Goodrich had sought bankruptcy protection in April to eliminate close to $400 million in debt. It was one of dozens of oil and gas companies that succumbed to the market downturn from low commodity prices that left the sector roughly $17 billion in debt. As part of its reorganization plan, Goodrich received $40 million in new capital through the issuance of second lien senior secured notes due in 2019. Half of it was earmarked to pay down its outstanding debt from a previous credit facility. The remaining $20 million is targeted for the initial development of the company’s Haynesville shale drilling plan, according to the statement.

Goodrich is the latest E&P company in recent weeks to emerge on the scene post-bankruptcy. SandRidge Energy returned to public trading on the New York Stock Exchange. It emerged from bankruptcy protection Tuesday, shedding $3.7 billion in debt. It now has zero net debt and more than $500 million in liquidity. Eliminating the debt saves the company about $300 million a year in interest payments."

Just imagine: some folks were saying these bankruptcy filings were actually bad news for the companies. They did originate from the devastating drop in oil prices. But the bankruptcy filings turned out to be great improvements for those companies.
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