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Adam Wilmoth: Energy company bankruptcies surged in 2019

Wilmoth [Doug Hoke/The Oklahoman]
Wilmoth [Doug Hoke/The Oklahoman]

2019 was a rough year for the oil and natural gas industry.

Even as oil and natural gas production hit record highs both in Oklahoma and nationwide, layoffs mounted as Wall Street money fled the sector and companies struggled to pay down debt and operate within dwindling cash flow.

A report this week from the Institute for Energy Economics and Financial Analysis (IEEFA) highlights the trend, pointing out that bankruptcies surged among exploration and production companies last year.

A total of 42 exploration and production companies filed for bankruptcy in 2019, representing almost $26 billion in debt, double the $13 billion in bankruptcy-related debt filed in 2018.

“We’ve been watching these companies flounder under mounting debt and negative cash flows for many years,” Kathy Hipple, an IEEFA financial analyst and author of the brief, said in the report. “It’s getting harder and harder for these companies to find investors to keep them afloat and avoid imploding.”

Companies searching for natural gas in the country's Appalachian region struggled the most in 2019 as natural gas prices in the region fell by one-third, the report stated.

But 2019's financial challenges were not limited to Appalachia or to exploration and production companies.

“We are seeing slowdowns and negative cash flows spill over into the oil services sector that relies on the E&P companies for their business,” Hipple said. “And heavy hitters such as Schlumberger and Halliburton recorded significant losses in 2019.”

So far, 2020 doesn't look any better for the industry. The IEEFA report found that more bankruptcies are likely this year as companies are scheduled to repay or refinance more than $100 billion over the next few years.

“Under present conditions, it’s difficult to see any light at the end of the tunnel for oil and gas producers,” Hipple said.

Credit ratings agency Moody's also has highlighted the sector's credit risk. In an Oct. 31, 2019, report Moody's pointed out that seven of the 11 bankruptcies filed in the third quarter were oil and natural gas companies and said the sector has not fully recovered from the 2015-2016 industry downturn and that the credit risk was continuing to build.

"The number of companies that could see their ratings downgraded to distress level could easily exceed that of the last default cycle," the report stated. "Aggressive balance sheet management has contributed to the weakening of corporate family rating distribution, with private equity leading the charge.

Adam Wilmoth

Adam Wilmoth returned to The Oklahoman as energy editor in 2012 after working for four years in public relations. He previously spent seven years as a business reporter at The Oklahoman, including five years covering the state's energy sector.... Read more ›

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