Bankruptcy in the Industry

[grayduck + 1]

How likely are bankruptcies in this current climate with prices bottoming out in the industry for basic and service companies? Any tips for doing research or where to look for bankruptcy likelihood or risk? How well situated are companies like FANG, MTDR, HESM, NOA and TGE? I'm not looking for investment advice, just tips on how or where to watch, or if there is some special location, site or forum specific to this industry that watches this topic.

[surrept33 + 609]

Take a look @

https://www.haynesboone.com/publications/energy-bankruptcy-monitors-and-surveys

[Refman + 207]

On 4/17/2020 at 1:43 AM, surrept33 said:

Take a look @

https://www.haynesboone.com/publications/energy-bankruptcy-monitors-and-surveys

Great link - thanks

[Jan van Eck + 7,558]

Your bankruptcy exposure is pervasive.  More specifically, just about everybody in the industry, indeed the entire economy except for outfits like Amazon, are exposed to bankruptcy.   Let's remember what "bankruptcy" is: it is a mechanism whereby either persons or corporations that are unable to pay the bills seek refuge, in order to provide a common forum for hammering out deals with creditors.  USA bankruptcy law is a lot different from Breitish (and thus Canadian,e tc) BK law.  The whole idea is to give a "fresh start" to the bankrupt.  UK law is focused on the corporation creditors;  USA bankruptcy law is focused on the Debtor. 

IN USA law, the Debtor receives the benefit on the "automatic stay," a provision found at Title 11, United States Code sec. 362(a).  That provision prevents any creditor from taking any action against the Debtor; the creditor has to come before the OCurt and file a Proof of Claim, and the claim gets dealt with inside the bankruptcy system.  So you have the situation where Debtors still have cash; just "not enough cash."  And that is the case in just about anybody involved in oil extraction today;  nob ody has "enough csh."  So, you can anticipate that lots of companies will file for bankruptcy protection, thus forcing their creditors to come to the table and negotiate a deal.  Those deals typically involve the creditors taking "less," a process known as "taking a haircut."  

Sometimes bankruptcies go "all the way" and no deals are found, in which case either the assets of the company are sold in a "bulk sale of assets" free of the creditor claims, under Section 363, or the company is liquidated entirely and the assets go to the creditors  (a common result in UK and Canadian law), or the creditors are issued equity shares in place of their claims, and the current equity holders are ejected, leaving them either nothing or some crumbs.  Because of these various risk profiles, yuou will find that the threat of BK, or the filing of a BK petition, is horrors to creditors, and deals are made, on the theory that "something is better than nothing."  It gets complicated fast, it gets expensive fast to pay the lawyers, so usually what happens is that the Debtor can re-structure, or re-arrange its affairs and its debts, without actually Filing, as once Filed, these things take on a life of their own, and the players all lose more. 

In today's oil production market, the risk of bankruptcy is just about 100% for everybody.  Food for thought. 

[CameronMcGrath + 4]

Surely every person, when starting a business, thought that everything would be fine and nothing would happen. I was also thinking. Before the pandemic, I had a business that brought me a lot of income. But I knew it couldn't always be this good. And then the pandemic hit, and sales of my product plummeted. I didn't know what to do, and I went bankrupt. All my partners left me, except for one person who found me people san diego bankruptcy attorney , who helped me with the registration of all the documents, at least one news for me is more or less joyful. I hope none of you will be in this situation.

Edited February 1, 2021 by CameronMcGrath

[Gerry Maddoux + 3,627]

On 5/3/2020 at 9:56 AM, Jan van Eck said:

In today's oil production market, the risk of bankruptcy is just about 100% for everybody.

Very true! While this industry has always been subject to political winds, politics are currently making oil and gas production a giant casino. 

To create true, lasting policy a president has to get something enshrined by Congress; presidential authority can be wiped out by the stroke of a pen flourished by the new president . . . as we're currently seeing. We have had no helpful congressional signings in a very long time. To the contrary, Mr. Trump (who had zero understanding of the oil and gas business and was not helped by Sec. of Energy Rick Perry, who had zero understanding of the oil and gas business) basically shut off LNG exports to China for a full year via trade wars. He did his best with the Keystone Pipeline but didn't know how to push it through. Like Geo W. and Clinton, he thought that the cheaper the price of gasoline at the pump the more popular he would be. To show macho he opened up drilling in the Arctic Nat'l Wildlife Refuge, only to discover that no one really wanted to drill up there. Then he declared a ban on offshore drilling off the coast of Florida, where people actually did wish to drill. 

My point? It's tough to survive in the oil and gas business without having to face a headwind from politics. Add in the whipsaw that is currently taking place and it's damn near impossible. Trump's order to the EPA to stand down, allowing thousands of shale wells to vent and flare indiscriminately, flooded the market with oil and gas, kept the price low and marginal drillers in the game, with their CEO's paying themselves a couple of million to run the company into the ground. Still, 40+ oil & gas companies declared bankruptcy in the U.S. last year. Whiting, a great driller with expert geologists, was one of them. Whiting was sure that the Keystone Pipeline would eventually go in. They drilled great wells on great acreage. Unfortunately, they also bought Kodiac at exactly the peak of the market. 

There are some likely survivors: Pioneer, EOG, Devon in the mid-size; CVX, XOM in the super-majors; Occidental in the majors. They will survive for one reason only: they have either cash or great drilling targets, or both. 

[Jan van Eck + 7,558]

<<<  Very nice post, Gerry.  Top notch stuff.

[Rob Kramer + 696]

I disagree with Jan & Gerry its closer to 99.99 😄 

Edited January 28, 2021 by Rob Kramer
Quoted 1 of 2 ppl.

[Kiorksey 0]

Quote

Hey everyone, jumping in as a forum newbie here.  This whole industry bankruptcy thing is a real head-scratcher.

It seems like even seemingly stable companies can go bust overnight. The Theranos story (https://federal-lawyer.com/theranos-whistleblowers/) really blew the whistle on how bad things can get when a culture of secrecy takes hold. It makes you wonder how many other ticking time bombs are out there.
I'm curious to hear what some of the veterans on the forum think. What are the biggest warning signs that a company might be headed for bankruptcy? Are there any specific red flags to look out for as an investor, or is it just a roll of the dice sometimes?

Edited April 3 by Kiorksey

[aliicebell 0]

When prices are at low levels and a business is more dependent on consumer demand, a situation of bankruptcy may occur. In all these circumstances, the profit margin of the company gets reduced due to low demand.

If you want to reduce the bankruptcy risk then you need to analyze some facts before starting any industry or company: financial statements, latest industry trends, debt levels, market conditions, bankruptcy prediction models, etc. 

[Danlxyz + 65]

The first post in this thread was on 4-15-2020 and crude was selling for $15-$20. Now about 4 years later crude is selling for $87.

This is an industry for gamblers.