Spotlight: Oil production has not had a significant impact on post-bankruptcy of U.S. E&P companies

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This projector S&P Global Platts Analysis was first published on July 13.

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The combination of collapsing oil prices and the coronavirus pandemic decimated the industry in the first half of 2020 to a level where exploration and production (E&P) and petroleum services (OFS) companies might never make a full recovery. Eighteen E&P companies filed for bankruptcy in the second quarter of 2020, according to Haynes and Boone LLC, bringing the 2020 total to 23 companies with more than $ 30 billion in debt. On the FSO side, 15 companies have filed for Chapter 11 in 2Q2020, bringing the total to 19 companies with another company, Hi-Crush, planning to file this month.

So what happens to production volumes when E&P companies file for bankruptcy and exit the other side? In many cases, an agreement is reached with the creditors and the debt is either restructured or relieved. Sometimes bankruptcy also requires a management reorganization. Operations generally continue, without production being halted or sold on a large scale – but not always as planned. The short-term and long-term growth plan of the business is usually adjusted downwards, and it is rare to see a business increase production within 12 months of filing for bankruptcy.

We have looked at six companies in the last five years that have emerged from Chapter 11 and only one (Halcon in 2019) has increased production after bankruptcy. It should be mentioned that most of the companies used in this analysis were filed during the 2015-16 oil price crisis, when it was rare to see production growth due to poor prices, and the production of these companies after bankruptcy followed the same trend.

For operators going bankrupt in 2020, we expect a similar outcome as prices may remain depressed for the foreseeable future. In the short term we expect D&C activity to be reduced, wells currently producing will continue to produce, but with natural declines that may outweigh new activity at least in the short term. Therefore, our short-term outlook should not be significantly affected by bankruptcies.

Drilling activity in oil-rich basins is expected to remain relatively weak in the near term, so we expect operators to rely on their stocks of DUCs to generate liquidity heading into 2H2020. Looking ahead, the bankruptcies of the E&P and OFS companies will most likely continue into 3Q 2020, as oil prices remain relatively low and coronavirus cases remain relatively high.

E&P Company Update

Recent bankruptcies

  • Chesapeake Energy became the largest US producer to date to seek Chapter 11 protection on June 28. The company has reached an agreement with lenders to eliminate $ 7 billion in debt.
  • Pure Delaware Basin producer Rosehill Resources plans to file for bankruptcy by July 15 after exploring all strategic and financial options.
Defaulting exploration and production (E&P) companies
COMPANY NAME REASON FOR DEFECT DEFAULT DATE
Bridgemark Corp. Chapter 11 01/14/2020
Southland Royalty Co. LLC Chapter 11 01/27/2020
Dalf Energy, LLC Chapter 11 02/17/2020
Sheridan Holding Company I, LLC Chapter 11 03/23/2020
Echo Energy Partners I, LLC Chapter 11 03/24/2020
Whiting Petroleum Corp. Chapter 11 04/01/2020
Sklar Exploration Company, LLC Chapter 11 04/01/2020
Amazing Energy, LLC Chapter 11 04/06/2020
Temblor Oil Company, LLC Chapter 11 04/09/2020
Yuma Energy, Inc. Chapter 11 04/15/2020
Buzzards Bench, LLC Chapter 11 04/30/2020
SM Energy Distressed exchange 04/30/2020
Victerra Energy Holding Co., LLC Chapter 11 05/06/2020
Freedom Oil & Gas, Inc. Chapter 11 05/11/2020
Callon Oil Distressed exchange 05/11/2020
Wood energy from the fields Missed interest 05/12/2020
New Emerald Energy, LLC Chapter 11 05/14/2020
Ultra Petroleum Corp. Chapter 11 05/14/2020
Gavilan Resources, LLC Chapter 11 05/15/2020
Centennial Resource Development Distressed exchange 05/21/2020
Unit Corp. Chapter 11 05/22/2020
Templar Energy, LLC Chapter 11 05/31/2020
Oil and Gas Extraction, Inc. Chapter 11 06/14/2020
Chisholm Oil and Gas Development, LLC Chapter 11 06/17/2020
Permian Sand Resources, LLC Chapter 11 06/25/2020
Chesapeake Energy Corp. Chapter 11 06/28/2020
Lilis Energy Chapter 11 06/28/2020
California Resources Corp Chapter 11 07/15/2020
Rosehill Resources While waiting for the filing of chapter 11 mid-July

Source: Haynes & Boon, LLP and S&P Global Ratings

OFS company update

Oil service companies (OFS) are expected to cut around 20% or 1 million OFS employees globally due to falling oil prices and the coronavirus pandemic. This includes sand and proppant companies which provide essential resources to the completion process. Lower demand for sand and proppants due to reduced drilling and completion activity is hitting this part of the industry hard.

Below are three sand companies that recently filed for Chapter 11 and one that emerged after filing in January of this year.

Recent bankruptcies and one emerging from it

Vista Proppants & Logistics filed for bankruptcy on June 9.

  • U.S. sand company Covia Holdings Corp filed for Chapter 11 bankruptcy protection on June 29. The company has negotiated a restructuring support agreement with most of its secured debt holders and US operations will continue as normal.
  • Wisconsin sand company Hi-Crush plans to file for bankruptcy and may be forced to shut down after losing nearly $ 147 million in 1Q2020. The company has closed three of its mines and reduced its workforce by 60% since mid-March due to weak demand for sand during the coronavirus pandemic.
  • McDermott International successfully emerged from Chapter 11 bankruptcy on June 29, after reducing its debt by $ 4.6 billion and raising $ 2.9 billion in new credits and loans. The company initially filed a case on January 21 of this year.
Defaulting oil service companies (OFS)
COMPANY NAME REASON FOR DEFECT DEFAULT DATE
Kingfisher Stack Pipeline, LLC Chapter 11 12/01/2020
McDermott International Inc. Chapter 11 01/21/2020
Harvey OST Oilfield Services Inc. Chapter 11 02/13/2020
Capstone Oilfield Disposal Services LLC Chapter 11 02/14/2020
Pioneer Energy Services Corp. Chapter 11 03/01/2020
Tri-Point Oil & Gas Production Systems LLC Chapter 11 03/16/2020
Carbo Ceramics Inc. Chapter 11 03/29/2020
Eco-Stim Energy Solutions Inc. Chapter 11 04/16/2020
Offshore Diamond Drilling Inc. Chapter 11 04/26/2020
BOS Solutions LTD. Chapter 11 05/04/2020
Elite Infrastructure, LLC Chapter 11 05/08/2020
Entrec Corporation Chapter 11 05/15/2020
Energy Technologies Forum Distressed exchange 05/15/2020
Hornbeck Offshore Services, Inc. Chapter 11 05/19/2020
J&R Valley Oilfield Services Inc. Chapter 11 06/01/2020
Vista Proppants & Logistics, LLC Chapter 11 06/09/2020
Total Oilfield Solutions, LLC Chapter 11 06/15/2020
Naphta Energy Solutions, LLC Chapter 11 06/22/2020
RWDY, Inc. Chapter 11 06/22/2020
Covia Holdings Corp. Chapter 11 06/29/2020
Hi-Crush Inc. Chapter 11 07/13/2020

Source: Haynes & Boon, LLP and S&P Global Ratings

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