A steep downward trend in crude oil prices, dropping by nearly half since the summer, has already caused mass layoffs and, now, two new bankruptcy filings in March. Factors such as these and others have made the domestic industry, as well as those that support it, one to watch for potential restructuring activity.
“The primary factor is the drop in prices,” said Kit Pettit, a senior associate with the Pennsylvania firm Bernstein-Burkley, PC. “A lot of these individually run startups don’t have the business experience or acumen to adjust.” In July eNews and NACM Secured Transaction Services coverage, Pettit predicted potential problems concerning the industry: “There are a number of new entities or startups looking to get work. You may very well have companies that fail to perform properly. You may have companies that don’t know what they’re doing or perhaps expanded too quickly or don’t have employees with enough skill or training."
If prices hold at these levels or continue to fall, solvency struggles could increasingly affect more established companies if they are overleveraged, Pettit added. Restructuring experts nationwide identified the global energy sector in a recent survey by AlixPartners as the area with the most potential for restructuring activity this year. (Learn more about the survey in item No. 3 of the March 12 eNews edition.)
This year, a number of Texas-based oil and gas companies already have sought protection under Chapter 11. In January, Austin-based WBH Energy LP became the first shale oil and gas producer to file and foreshadow the potential of a greater trend. This week, Dune Energy Inc., a Houston-based oil and gas explorer with operations in its home state and Louisiana, filed following a failed merger.
Drilling company BPZ Resources Inc., also from Houston, followed on the heels of Dune, citing $275.2 million in debt. Another Houston-based company, Cal Dive, an offshore oil services outfit, filed the previous week. “Our efforts to negotiate additional financing to fund business activities and pursue identified strategic alternatives were further impeded when oil prices plummeted and production growth faltered, creating additional obstacles to our restructuring efforts,” said Manolo Zuniga, BPZ president and CEO, in a statement.
- Diana Mota, NACM associate editor