Eighteen US based oil companies filed for bankruptcy over the past two months as it appears most players in the energy industry scramble to make ends meet during these difficult times. Many companies on the teetering on the brink of insolvency find themselves buried under high interest rates and lack of deployable capital due to low commodity prices. Many banks have cut oil company credit lines as part of the semi-annual review by lenders. But the combined $8.9 billion in debt between the eighteen companies still looms ever menacingly in the background.
Two of the bigger names on the most recent list of bankruptcies include Energy XXI and Ultra Petroleum Corp. Energy XXI attempted to delay paying the interest due on the debt of one of its subsidiaries mid-March, but was crippled by the $2.8 billion in necessary payments. Ultra Petroleum Corp. followed a similar path, finding themselves crushed under their $3.9 billion in debt. Chief Financial Officer Garland Shaw stated in a filing “the low commodity prices, and especially the low natural gas prices that prevailed throughout 2015 and have continued through the first four months of 2016 have had a devastating impact.”
According to Deloitte, possibly one third of US producers might not end up seeing the light at the end of the tunnel and be forced into bankruptcy this year if commodity prices don’t cooperate. From the beginning of this devastating oil downturn, 69 oil companies in North America have filed for Chapter 11 bankruptcy protection in court according to Haynes & Boone.
Low prices not only spell disaster for oil companies, but also mean tough financial times for the countries tied to their production. Determining break even prices for US oil producers is hard to pinpoint, but most companies will be happy once prices reach $75 per barrel. At this point, many companies are simply out of options. “There’s no point in paying the interest to bond holders at that point,” said one of the attorneys at Haynes & Boone, “They’ve got to conserve cash. A lot of the bondholders will be out of the money.”