Oil And Gas Bankruptcies Set To Double This Year

| Educate!

Above Photo: Chris Jordan-Bloch/Earthjustice

Creditors from bankrupt oil and gas companies are suffering in the current climate, as loan recovery rates have plummeted while insolvencies have increased, which may even be on a par with the collapse of the telecoms industry in the early 2000s, according to Moody’s Investor Service.

The branch of the ratings agency which provides credit assessments, research, and risk analysis in 130 countries, has announced that in 2015 a glut of bankruptcies and defaults in the oil and gas sectors, have been encouraged by the low commodity price conditions.

Throughout 2015, Moody’s counted that there were 17 oil and gas bankruptcies, with 15 of them coming from the exploration and production sector (E&P).

The number of E&P bankruptcies has accelerated this year, with analysts anticipating that the volume of failed E&P companies will reach twice the number for last year.

In comparison, when the telecoms industry boom had turned into bust, Moody’s Database recorded 43 company bankruptcies, during a three-year period between 2001 and 2003.

David Keisman, Senior Vice President at Moody’s, suggested that the end result of the current unfolding patterns, could turn out to be a segment wide bust of historic figures.

The knock on effect on creditors has been huge, as the 15 E&P companies who filed for bankruptcy, held debts that totalled at least $100 billion.

Recovery rates for E&P bankruptcy in 2015 averaged only 21 percent, a significantly low ratio of arrears being claimed, far lower than the historical average of 58.6 percent.

Overall, Moody’s study revealed that the average recovery rate between 1987 and 2015 was 50.8 percent for corporate bankruptcy protection levels in that time.

Additionally, at the debt instruments level, in total 81 percent of reserve based loans were recovered in 2015, 17 percent lower than what was retrieved from E&P bankruptcies during 1987 and 2014.

Other debt instruments suffered more, high yield bonds recovered a derisory 6 percent, compared to a recorded rate in the low 30 percent range in previous E&P bankruptcies.

Oil prices have hardly been a boon to those companies which have been in trouble, with Brent Crude prices beginning to fall away midway through 2014, precipitating to a nadir for U.S. crude of just $30 per barrel in January.

According to Deloitte’s report released earlier in the year The Crude Downturn for E&Ps: One Situation, Diverse Responses.”, E&P companies have made huge sacrifices, by slashing $130 billion of their capex spending, alongside other measures such as asset sales, equity issuance, and lower shareholder distribution.

The U.S. Federal bank regulator, the Office of the Controller of the Currency, is also keeping a watchful eye on the banks’ oil and gas portfolios, after seeing a rise in undeveloped reserves, which banks have used as collateral for loans.

Overall, the Deloitte report revealed that the debt/EBITDA ratio of a large section of U.S. oil and gas companies has surpassed the asset impairments threshold of over $135 billion by U.S. oil and gas companies.

Despite the adverse conditions of high leverage and weak operational performance, the thirst for risk has not dissipated Deloitte believes, with an estimated 40 percent of deals not being concluded for non-producing fields, which have high capex commitments, with no cash flow generation.

In addition, 64 percent of corporate deals by value, had a debt component of more than 20 percent, even though the banking industry is looking to squeeze the usual credit conditions.

Stephen Kennedy, the head of energy banking for Amegy Bank, reflected: “I am not surprised in a low price environment that we are seeing a high volume of bankruptcies. This is the worst downturn since the mid-eighties, there has been a dramatic price fall, and companies have not had the sufficient capital to withstand the situation.”

“They have to survive this downturn, they have to have liquidity needs to cut unnecessary capital expenditures and overheads. During this year, oil companies replaced only two thirds of their produced reserves, there is usually a 7 percent annual depletion of oil reserves. In 2014 it was different, as in North America there was an increase of 1.8 million barrels per day, and the rest of the world replaced all of their product reserves.” Kennedy added.

He also argued that it’s going to take more than a workout of debt repayment out of cash flow, conversion of debt will be needed where the public bond holders exchange their debt for company stock.

That relieves the company of the interest rate burden of that debt, although there is a risk that current stockholders may end up with nothing.

Kennedy opined: “Debt structure was far simpler and less complex in the mid-eighties compared to now, as then it was equity and bank debt, now they may have equity and may have subordinated debt, institutional investors, secondary debt to financial players, and then senior debt which is all banks, unsecured bonds are two thirds of the debt structure of the company.”

“It ends up being the lever of whether the company survives or not, the banks are suffering losses, and creditors, mostly bond holders are a large burden on the company, which is why bankruptcies are filed.”

Kennedy also agrees with the conclusion of the report, that there are more bankruptcies to come, which could leave creditors to be more out of pocket.

  • Good news, given CLIMATE CRISIS IS A DIRE EMERGENCY NOW! Get out the vote for Hillary so we can continue Bernie’s People Political Revolution. Under Trump we’d have a police state. Arrggghhh.

  • Lili-Ann Berg

    you poor deluded woman voting for Hillary is voting for death and there are choices like Dr Jill Stein- ever heard of her?

  • I’m 75, an Eco-Social Justice ACTIVIST before mean-spirited young women like you were born. I’ve written 16 major books on social justice & eco-sanity. Are you a TRUMP TROLL? I live in NYC & Jill Stein is a friend of mine. I can vote Green as USUAL here in my PROGRESSIVE area, BUT NOT IN A SWING STATE. Drumph, climate denier with Nazi-like leanings, will create a Police State and end the Paris Agreement and there will be no more chance to save the habitable planet for you, under his admin. You ought to listen to Bernie Sanders who is a Pragmatist. We can continue the People’s Revolution under Hillary, we’re doomed under Drump, because time is TOO SHORT to save the planet & Her ecological systems under KKKTrump. Climate crisis EMERGENCY is mobilizing all eco-orgs for Hillary for that reason, so that we can hold her feet to the fire with marches & protests to protect the habitable Earth. Under Drumph we’re doomed. WAKE UP! Go to http://www.350.org or http://www.ClimateMobilization.org I’m aware of Hillary sins, but KKTrumph’s a million times WORSE! He is death to all!

  • Lili-Ann Berg

    Dani, I’m flattered that you called me young I will be turning 76 next month. No I’m not a troll for anyone and no one has ever called me mean-spirited before. I’m a Swedish born Australian and while watching the whole US election charade from afar, no one scares me more than Hillary Clinton – a known warmonger, a formidable liar, own by Wall Street, Israel and the Corporations who shower her with money. I will never forget her satanic cackle:”We come, we saw, he died”. America intervenes all over the world, removes democratically elected leaders because they do not obey Washington. Leaving behind nothing but chaos, death and destruction. It’s time America understands the world hates you and your foreign policy, your imperialism and the idea that you are in any way exceptional. Look no further than your own backyard – the police brutality against black and Hispanic Americans, jailing more people for petty crimes than any other nation on earth, have no universal health care, while your criminal corporations and military commits genocide, torture, theft and land-grab in illegal wars all over the world. And who represents all this? Your elected President. And Hillary will do as she is expected to do – continue the war in Syria, eliminate Assad, provoking Russia with false accusations and aggressive rhetoric and lies, placing nuclear missiles on its very borders. It’s total lunacy. All it takes is one step too far and BOOM! We all be dead. What do you think Bernie Sanders will achieve once Hillary sits on her fat butt in the Oval Office, while her randy husband is chasing after interns in the corridors? Zilch! His voice will literally be droned out (pun intended).
    America is plainly insane – to choose the lesser of two evils is no choice at all – it’s a death sentence for you and the rest of humanity.

  • Dear Lili-Ann Berg, Yes, you are correct and I empathize. I know Hillary Clinton’s sins, but Donald Trump is a montrous liar and egomanical demogogue even far far worse than Hillary Clinton. He will blow up the world and is evern more pro-evil. I’m one of millions & millions of progressive American Citizens fightiing the sins of the USA. We have many people and many alernative journalists who understand everything you say. I’ve been an activist all my life. We in the environmental and social justice here know that if we vote for Jill Stein in swing states, an even MORE HORRIBLE administration will come into place. Trump will destroy the world. Hillary Clinton admits Climate Crisis is here and she will be careful with the nuclear arsenal. Trump wants to use it and totally denies climate crisis. He is an INSANE billionaire fool with Nazi-like tendencies and a far greater evil. Jill Stein CANNOT win. In Swing states we have to vote for Clinton AGAINST TRUMP despite all you say. In swing states a vote for Jill Stein, our best candidate, is a vote for our most horrible Nazi-like, Fascistic egomaniac Trump. Hillary is a grandmother and she believes in climate crisis. I get what you are saying, but many of us know and work hard for years in the peace, anti-nuclear, social justice movement. I have marched and protested and written many books that understand what you say. You are ill informed somewhat about what goes on here and all the Americans who know what you say. You’ve been listening to too much propaganda. I;m very informed and the lesser evil gives us a chance, The greater evil will be the end of life on Earth with Trump!

  • Lili-Ann Berg

    OK, I get what you are saying, You have a two-party system and apart from the two main candidates no one else will be invited to take part in debates. It’s hardly a democracy where a vote for the best candidate will end up a vote for the worst, its a dictatorship I agree that Trump would be a disaster, but the fact that Clinton is a grandmother will hardly make a difference to her warmongering ambitions. They are both insane psychopaths and as such equally lethal to peace on earth. The entire world is watching this election farce with a mounting sense of doom. Russia is not the nation to fear, it’s America and its demented poodles that will be the slayers of humankind. And what’s it really all about? Oil and money. Short-term profits for the Billionaire Boys’ Club. Military might and hegemony. The endgame to end all endgames. Insatiable greed.

  • Yes, we are an oligarchical corporatocracy, but we still have SOME alternative free press and many citizens who fight the the corporatocracy’s CEO’s who control our govt’. We are fighting the 2 party system. That’s why Bernie Sanders and Jill Stein of the GREEN Party can exist. You are correct, but Putin is another Trump and kills oppositional candidates and the press who disagree with him. We have a little MODICUM of democracy left here. I know the sins of the USA, but you have no idea how many Progressives we have here in the multi-millions who are fighting the INTERNATIONAL MULTI-NATIONAL CORPORATROCRACY. Hillary will be no worse than Obama, and Bernie Sanders has pushed her to the left. Progressives have accused her of being a war hawk here. TRUMP is FAR FAR WORSE. Hillary was playing the only game in town, pay tp play, and she was TAUGHT by Bernie Sanders that you can listen to the people and not the multinational corporations that rule the world now. We are fighting EXXon-Mobil and the fossil fuel industry and making inroads. We are struggling against the coporatocracy of oligarchs, the CHIEF EXECUTIVE OFFICERS of MULTI_NATIONAL CORPORATIONS to try to save the Earth. We the people, many many of us, feel as you do, but we know that Putin is the same monster as Trump, a dictator. We here in the Progressive movement KNOW full well it’s about oil and money, but it’s about oil and money around the world, too! Yes, the USA has committed the most international sins during the second half of the 20th century into the 21st. BUT, the USA also helped to quell Hitler and now we are threatened with our own fascist dictator who read the speeches of Hitler all his life to learn how to beguile the ignorant. We have huge pockets of poverty and ignorant and our major media is MOSTLY a propaganda tool. MANY HERE are working hard to take back our country from the oligarchs of corporatocracy and their horrible greed. EARTHLY BLESSINGS. We the 99% of people of the Earth all now own less than the 1 % of multi-billionaires EVERYWHERE! We must be EARTHLINGS TOGETHER against the forces of corporate profiteering and TURBO-capitalism. Many of us are socialist democrats and don’t really have a viable party to vote for and love Jill Stein, Rest assured. The Swedish people have it easier, not being a huge nation of multinational backgrounds and immigrants from Europe and Native Americans and Africans who were enslaved here. You have plenty of prejudice there against immigrants, too. Sweden is not so perfect. But, I understand all you are saying. You are barking up a tree that worked hard against the forces you speak of, all her life. Trump will kill us all. With Hillary we will have a slim chance to improve democracy and put down the corporatocracy. I’ve known for many years that the USA is not a complete democracy at all. Not since Franklin Delano Roosevelt when we had more democracy than now. Still Putin is a worse dictator or just as awful as Trump would be. But so far Trump has murdered his opponents, horrible as he is.If he gets into office, he well might. Earthly blessings and signing off. I worked in Civil Rights and was beaten and abused by the KKK when I was 20 and have been a peace & social justice advocate and activist ALL my life. There are MANY like me here. Earthly blessings.