Low oil prices and the distress of the solar, coal, and oil and gas producers resulted in nine energy firms making the top 10 of public company bankruptcies for 2016 with assets valued at more than US$3 billion each, according to a recent publication by law firm Jones Day.
The top 10 bankruptcies of public companies – defined as a company with publicly traded stock or debt – included just one non-energy entry and came from the airline industry.
Jones Day’s top 10 bankruptcies list for 2016 paints a rather gloomy picture of the energy industry’s struggles amid the downturn in oil prices, slashed investments in drilling, and heavy borrowing before the slump.
Saint Louis-based solar energy company SunEdison Inc held the unfortunate no.1 spot on Jones Day’s list with US$11.5 billion worth of assets and more than US$8 billion in debt. SunEdison filed for Chapter 11 protection in April 2016 and initiated a court-supervised restructuring to address “immediate liquidity issues”, after having borrowed heavily in previous years.
St. Louis-based coal miner Peabody Energy ranked no.2 on Jones Day’s list, having filed for bankruptcy a week before SunEdison. Peabody had US$11 billion in assets and US$10.1 billion in debt.
Peabody’s Chapter 11 filing was just one of last year’s bankruptcies in the U.S. mining industry that also claimed Alpha Natural Resources, Patriot Coal Corporation, Walter Energy, and Arch Coal Inc – the latter taking the no.4 spot on Jones Day’s list with US$8.4 billion in assets and US$6.5 billion in debt at the time of the bankruptcy filing in January 2016. Arch Coal emerged from Chapter 11 in October 2016. Related: Trump’s Trade War With Mexico Could Crash Natural Gas Prices
Miners have been having a rough time with high leverage, low energy prices, stricter environmental regulations, increased conversion of coal-fired plants to natural gas as a result of the shale revolution, as well as slower demand from China, the law firm’s report says.
In between the two mining industry’s bankruptcies came the first oil and gas producer, Houston-based LINN Energy, to make the list at no.3 after filing for Chapter 11 in May 2016. LINN Energy – one of the many casualties of the commodity prices slump - had listed US$10 billion worth of assets at the time of the filing.
Low oil prices also claimed Los Angeles-based Breitburn Energy Partners, which sits at no.5 on the list, with US$4.8 billion in assets and US$3.4 billion in debt when it filed for Chapter 11 in May last year.
The oil price bust victims in Jones Day’s top 10 also include Bermuda-based oil and natural gas producer Energy XXI at no.6, which filed for bankruptcy protection in Texas in April 2016 with US$4.7 billion in assets and US$3.6 billion in debt. In December 2016, the company said that it had successfully completed its financial restructuring and emerged from Chapter 11, eliminating more than US$3.6 billion of debt.
Oil and gas exploration company Halcon Resources and offshore drilling rig operator Paragon Offshore PLC – both based in Houston – ranked 8th and 9th, respectively, on the bankruptcy list for 2016. Halcon Resources filed for Chapter 11 bankruptcy protection as part of a restructuring agreement with creditors to eliminate US$1.8 billion, or 65 percent, of its debt and US$222 million of preferred stock equity. In September 2016, Halcon Resources said that it had completed its financial restructuring and emerged from its pre-packaged Chapter 11 bankruptcy cases, eliminating some US$1.8 billion in debt. Related: The Oil War Is Only Just Getting Started
Paragon Offshore, for its part, sought in February 2016 protection to implement a pre-negotiated restructuring plan to cut debt by around US$1.1 billion. At the time of the filing, Paragon listed US$3.3 billion in assets and US$2.6 billion in debt, according to Jones Day. On top of plunging oil prices, Paragon’s drilling and production activities suffered from its big customers - including Pemex and Petrobras - cutting their contracts significantly.
Oklahoma City-based oil and gas producer SandRidge Energy takes the 10th spot in the top 10 list, with US$3 billion in assets and US$4.4 billion in debt at the time it filed for Chapter 11 protection to seek pre-arranged reorganization in May 2016. In early October SandRidge said that it had emerged from Chapter 11, received approval to relist on the NYSE, and it is exiting restructuring with some US$525 million in total liquidity.
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According to Haynes and Boone’s latest Oil Patch Bankruptcy Monitor, as many as 114 North American oil and gas producers have filed for bankruptcy since the beginning of 2015. These bankruptcies involve around US$74.2 billion in cumulative secured and unsecured debt. As of December 14, 2016, a total of 70 producers had filed bankruptcy in 2016 alone, representing some US$56.8 billion in cumulative secured and unsecured debt. In oilfield services, Haynes and Boone has estimated that 110 bankruptcies have been filed since the beginning of 2015.
By Tsvetana Paraskova for Oilprice.com
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Our panel discussed the oil and gas restructuring of 2017 and why there could be an uncertainty with this:
https://www.theknowledgegroup.org/webcasts/legal/bankruptcy/oil-and-gas-restructuring-2017