Energy Bankruptcies Accelerate
BY ERIN AILWORTH AND STEPHANIE GLEASON
SandRidge Energy Inc., an early player in the American shale boom and onetime Wall Street darling, became the latest oil and gas company to file for bankruptcy Monday in what is becoming the largest wave of corporate restructurings since the financial crisis.
The Oklahoma City-based driller is the fifth energy company to file for bankruptcy in five days, part of an accelerating parade of defaults in a sector that has been struggling with low oil prices for more than 18 months.
Some 77 North American energy companies have now declared bankruptcy since the start of 2015, soon after oil prices collapsed from a peak of more than $100 a barrel and began weighing on balance sheets, according to Houston law firm Haynes & Boone LLP.
This year, 175 oil-and-gas producers around the world are in danger of declaring bankruptcy, and the situation is nearly as dire for another 160 companies, many in the U.S., according to a report from Deloitte’s energy consultants.
Casualties of the bust will continue even though the price of crude has rebounded to more than $47 Monday since hitting a 13-year low of around $26 a barrel in mid-February. For many American oil companies, the oil market’s revival is too little, too late.
Most of the companies facing financial duress are small and midsize U.S. shale producers and the service companies that help them drill. Fueled by cheap debt from Wall Street, these companies rapidly expanded over the last decade as the U.S. unlocked vast new oiland- gas reserves with advanced technologies like hydraulic fracturing, or fracking.
Linn Energy LLC, Berry Petroleum Co. and Penn Virginia Corp. all filed in recent days in Texas; Breitburn Energy Partners LP declared bankruptcy late Sunday in a New York court. Exco Resources Inc. said Friday that it hired advisers and formed a special committee to explore alternatives, including seeking bankruptcy protection.
“Keep an eye out, there’ll be more,” said Charles Beckham Jr., a law partner at Haynes & Boone. “For the industry it’s kind of a dreadful watch.”
A subsidiary of American Energy Partners LP, a firm formerly led by late shale pioneer Aubrey McClendon, has defaulted on a $450 million loan, according to people familiar with the situation.
SandRidge was created in 2006. Above, one of its rigs in Kansas.
ORLIN WAGNER/ASSOCIATED PRESS
Oil and gas companies this year have defaulted on $26 billion, according to Fitch Ratings data. That figure already surpasses the total for 2015, $17.5 billion.
These numbers have driven the number of corporate defaults overall to levels not seen since 2009, according to S& P Global Ratings.
Investors poured capital into American oil producers when prices were high, and many companies pursued wells that were only economic when the price of crude was $70 or more. As oil prices began to plunge in the fall of 2014 due to a global glut the U.S. drillers helped create, much drilling activity from Texas to North Dakota to Pennsylvania became unprofitable.
SandRidge, created in 2006 by Tom Ward, who co-founded Chesapeake Energy Corp. with Mr. McClendon in 1989. Mr. Ward paid $500 million to take control of a natural-gas producer, which he renamed SandRidge and built into a leading shale producer with a market capitalization of more than $11 billion.
The company attracted an array of investors including TPG-Axon Capital Management LP and Mount Kellett Capital Management LP. Each lost more than $150 million in the company’s decline, as did a longtime supporter of Mr. Ward, veteran Canadian investor Prem Watsa, the Journal reported earlier this year.
On Monday, SandRidge said it had reached a prearranged debt-restructuring pact with creditors, which still requires court approval, to swap $3.7 billion in debt for control of the company. The plan should allow SandRidge to emerge from bankruptcy in short order, said James Bennett, who became its chief executive after Mr. Ward was ousted by activist investors in 2013.
SandRidge completed several debt deals in 2015, including a $50 million equity-fordebt exchange and $1.25 billion private offering of second- lien notes last May.
Funds raised in the private offering were used to repay money borrowed from Sand-Ridge’s revolving credit line. Issued at par, that debt recently traded hands at just 34 cents, according to Fitch Ratings. Current shareholders aren’t expected to recover anything in the company’s bankruptcy. —Lynn Cook and Matt Jarzemsky contributed to this article.
Oil and gas firms this year defaulted on $26 billion, says Fitch Ratings.
