THE D or É R eport
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ANOTHER YEAR OF BANKRUPTCY
A lot of not-so-great things happened in 2019. The Houston Astros fell in Game 7 of the World Series, there was a college admissions scandal, the Notre Dame Cathedral caught fire … oh, and over 300 oil and gas-related companies filed bankruptcy. At the beginning of 2019, one of the things our firm endeavored to do was keep an active list of oil and gas bankruptcy cases filed in the U.S. throughout the year. Every day, we checked the filings for new cases and added what we found to the Bankruptcy Tracker 2019. You may have noticed that we added a Bankruptcy Tracker section each month to our Doré Report newsletter (the full tracker database is available upon request). The results were staggering. January started out very slow with only one small Chapter 7 filing in California. February had 13. March had 55. The 309th entity filed on Dec. 16. What caused this second wave of oil and gas bankruptcies in five years? This past year, we saw what most in the industry would call another downturn, largely spurred by the continuously depressed commodity prices. We spent most of the year avoiding the D-word, but it remained an unspoken truth. Oil prices spent most of the year in the $50 range, which didn’t help the cause. Another factor is that the industry tried to pick up where it left off after the 2014 downturn. But this time, a lot of traditional bank lenders were generally nervous to get
back into the oil and gas business. Several major lenders had begun withdrawing from the space completely. Instead, we saw a lot of private equity groups throw their names (and their money) into the hat. These new lenders introduced fresh attitudes to an industry traditionally known for drastic overspending. A focus seemed to be placed on cash flow, which many exploration and production/other oilfield service companies seemed to struggle with. Before you knew it, the monies started drying up along with new drilling permits. As we have written about before in the Doré Report newsletter, we saw a rise in “Chapter 22” bankruptcies (a company’s second chapter 11). This was probably the result of overly optimistic trend lines and projections of where the industry would be post-2014. This time around, we aren’t seeing those overly optimistic speculations from the bankers, financial advisors, attorneys, or other industry professionals. Everyone settled down into a wait-and-see attitude, which is where we remain today. So, the question is “What can we expect to see in 2020?” Probably more of the same for a little while. But if these past five years have shown us anything, it is that the industry is resilient.
After all, it wasn’t all bad in 2019. The U.S. Women’s National Soccer team won another World Cup. Jose Altuve hit a walk-off home run against the Yankees in the ALCS. We have seen a meaningful rise in bankruptcies filed in Houston courts, meaning fewer oil and gas debtors are filing bankruptcies in Delaware away from their creditors. We have seen a rise in the trend of debtors taking care of their service companies through “critical vendor,” “operating expenses,” and “lienable operating expenses” motions. Overall, the number of 2-cents-on-the-dollar unsecured recoveries is way down. Why is that? We prepare. Our job is to keep you in a position to protect your claims and navigate through the complex bankruptcy process. We file perfect liens, and we act quickly. Remember, the companies that learn to operate profitably during the tough times will be best positioned to thrive in the years to come. Doré Rothberg McKay is pledged to help you get there.
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