The number of oil patch bankruptcies in 2018 was up slightly from 2017, a new report said, but it still doesn’t rival bankruptcy activity from the years before that.
A total of 29 oil patch companies filed for bankruptcy in 2018, following 24 in 2017, according to Haynes and Boone’s Energy Bankruptcy Reports. The related legal work has continued to go to big Texas firms, but an increasing number of out-of-state firms are getting in on the action as well.
Houston-based Haynes and Boone, which has tracked oil patch bankruptcies since 2015, reported that a total of 167 oil and gas producers have filed for bankruptcy since 2015, for about $96 billion in debt over the four-year period. In 2018, the 29 filings were valued at $13.3 billion in debt, and the 24 filings in 2017 were valued at $8.5 billion in debt.
Charles Beckham, a restructuring partner at Haynes and Boone in Houston, said the number of bankruptcy filings in 2017 and 2018 reflects the upward trend in commodity prices. However, commodity prices slipped during the fourth quarter of 2018—the price of a barrel of oil dropped 40 percent from October through the end of December—and time will tell if that will translate into more Chapter 11 filings for oil patch companies this year, he said.
“I suspect there will be an increase [in bankruptcy filings] if the commodity prices remain at their current level or go down, but the impact of a dip in commodity prices on the number of bankruptcies is not immediate,” he said.
The price of a barrel of West Texas Intermediate Crude closed at $52.36 on Wednesday.
Beckham said Haynes and Boone lawyers had some role in about half of the 167 oil patch Chapter 11s filed over the last four years.
“All Texas firms that have a significant bankruptcy and restructuring practice on the business side have been very active … since 2015,” he said. “A lot of out-of-state firms have also become very active in the energy bankruptcy space, though they did not have that experience in the past,” he added.
The two biggest oil patch Chapter 11s filed in 2018 were Exco Resources’ $3.045 billion bankruptcy, and Fieldwood Energy’s $3.343 billion Chapter 11, both filed in bankruptcy court in the Southern District of Texas. According to court filings, firms representing Exco include K&L Gates, Kirkland & Ellis, Foley Gardere and Corral Tran Singh. Weil, Gotshal & Manges represented Fieldwood Energy in its Chapter 11, which closed last year.
Haynes and Boone also monitors oilfield services bankruptcies, reporting 12 filings during 2018 valued at $2.85 billion in aggregate debt. That compares with 40 filings and $35 billion in aggregate debt in 2017. Haynes and Boone tabulated a total of 175 oilfield service company bankruptcies with debt totaling $57.4 billion since 2015, in the updated Oilfield Services Bankruptcy Tracker made public this week.
Separately, Haynes and Boone reports that only 25 midstream companies have filed a Chapter 11 in the United States since 2015 for about $20.4 billion in debt. A midstream company is involved in the gathering, transporting, processing or storing of oil or natural gas.
“The midstream sector has not suffered the same level of distress experienced by E&P or oilfield services companies,” Haynes and Boone wrote in the Midstream Report.
Beckham said he is hopeful that commodity prices will stay high enough to prevent companies that successfully emerged from a Chapter 11 from running into more financial difficulties and being forced to file bankruptcy again.
“You always hope there will not be a Chapter 22, but I suspect there will be some in 2019,” he said.