The Bankruptcy Numbers In The Oil Patch -- 2015 - 2021 (As Of 1Q21)

Updates

April 18, 2021: speaking of bankruptcy - Hertz is reorganizing in bankruptcy court. 

April 18, 2021: from a reader yesterday -- a reader reminded me that "bankruptcy" clearly does not mean "going out of business." Filing for bankruptcy protection almost never results in the demise of that company.

Three of the largest current producers in the Haynesville - Goodrich, Chesapeake and Exco - have gone through bankruptcy in the past few years. 

A fourth company, the highly productive, recently bankrupt PetroQuest is still doing very well in the Haynesville.  

A fifth company, Halcon, who also filed for bankruptcy, formally operating in the Haynesville, is still operating in the Permian. 

While one may debate the fairness of each of these company's court histories, the fact remains that undergoing a bankruptcy can - and often does - leave a vibrantly productive outfit at the '"at the end of the day." 

Comment: I agree completely about the "issue" of bankruptcy. 

Good, bad, or indifferent it is a concept that is incredibly important in a free market economy. Absolutely critical. Much could be written. The oil and gas sector may be the most visible simply because it is such a big part of the global economy and more importantly, the nature of a the boom and bust cycle in a very capital-intensive venture. We will definitely see the same in the renewable energy sector -- most likely, more so -- and in some of the high-flying tech names now dominating the CNBC airwaves. 

And, oh by the way, government assistance ("bailouts") is not necessarily "wrong" -- GM is a great example. But one wonders if any administration would come to the aid of an XOM or CVX?

Having said that, it says something very interesting about the likes of XOM and CVX to have weathered the most recent one-two punch: the Saudi Surge of 2014 - 2016 followed by the Chinese flu pandemic, 2020 - present.

Hey, speaking of which, as an investor, one of my best investments ever was during the period when Texaco declared bankruptcy decades ago. That "event' taught me a lot about investing. From one side of the coin, I would say Texaco executed their strategy very, very well. 

Back to bankruptcy: generally, it seems bankruptcy is "hardest" on investors, creditors, and bankers. All three take calculated risks and generally, if playing their cards correctly, are well diversified and take steps to minimize risk. I would assume most weather the storm fine.

On the other hand, many workers whose livelihood and families depend on that work are still employed while the company goes through the process and are still employed after the company comes out of bankruptcy. The investors, creditors, bankers, in the big scheme of things, have "little" invested in any company that files for bankruptcy; the workers, on the other hand, often have everything "invested" in the company.

The CEOs, CFO, directors on the board? It appears they all do very, very well -- although their portfolio may take a temporary hit. 

Rambling on a Sunday morning. Much more could be said, but I will quit here.

Original Post 

The real story is not quite as alarming as the headline would seem to suggest.

Link to Tsvetana Paraskova. Embedded in that article is a link to a PDF that will automatically download. It's an eleven-slide presentation, of which six slides are not part of the presentation per se.

2015 - 2021 E&P bankruptcy filings by location:

• there were no bankruptcy filings in North Dakota;
• 129 filings were from Texas
• the next closest: Delaware with 40
• all of Canada: 18
• Colorado: 12
• Louisiana: 11
• New York: 10
• Oklahoma: 9
• California: 7
• Minnesota even had one; again, North Dakota had none
• but, of course, that has to do with where the companies are incorporated, not where they are working.

North Dakota: of the 2021 bankruptcies, 1Q21, January - March, only one operator I recognize working in the Bakken: Nine Point Energy Holdings, Inc (I think this is their second rodeo)

• secured: $273 million
• unsecured: $8.8 million
• total: $281,797,867

Aggregate debt, 2015 - 2021:

• biggest jump: 1Q16 to 2Q16 -- during the Saudi surge (2014 - 2016)
• second biggest jump: 1Q20 - 2Q20 -- the beginning of the lockdowns, Covid-19 pandemic

Aggregate debt: pretty much unchanged, 3Q20 - 1Q21.

Some excerpts from the Haynes and Boone presentation via the linked article:

• there were no producers with billion-dollar bankruptcies in 2Q21 which had not happened since 3Q18;
• the total debt for producers that filed in 1Q21 was just over $1.8 billion -- the second lowest total for a first quarter after $1.6 billion in 1Q19;
• even though the number of 1Q21 bankruptcies was the highest for a 1Q since 2016, it showed the trend of slowing filings after 18 oil and gas producers filed in the 2Q 20 and another 17 in 3Q20, the two quarters in which the oil price crash and the crisis were most severely felt by indebted producers;
• only eight producers filed for bankruptcy protection in 1Q21;

Service companies: 

• five oilfield services companies that filed for bankruptcy, the third-lowest 1Q total since 2015, and much lower than 27 filings in 3Q20 and another 17 filings from oilfield services companies in 4Q20;
• the aggregate debt for oilfield services companies that filed in Q1 2021 was over $7.2 billion—the third-highest Q1 total since 2015, but one company, Seadrill Limited, accounted for 99.8 percent of the aggregate debt for the quarter;