Oil and Gas Industry is Improving—-Fewer Bankruptcies

A Dallas law firm that’s made a national reputation for handling and tracking bankruptcies of oil and gas companies says it expects a modestly improved outlook for the industry in 2018.

Haynes and Boone, LLP is out with its survey of oil and gas borrowers and lenders. Entitled “Borrowing Base Redeterminations Survey: Spring 2018,” the report is the result of polling industry executives about the state of the energy lending market, whether it’s in Texas, Oklahoma, Kansas or North Dakota.

The law firm with its nearly 600 attorneys found that conditions are improving for oil and gas producers.  And it found that more than 80 percent of those who responded to the survey expect their borrowing bases to increase this spring.

“That is the highest rate of optimism about borrowing base increases that we’ve seen in the history of the survey,” according to Kraig Grahmann, head of the Energy Finance Practice Group at Haynes and Boone.

The rate of increase of the borrowing bases is anticipated at 10 to 20 percent. Maybe it’s nothing to write home about, but it gives optimism to the industry and also parallels the nearly 20 percent increase in the price of WTI crude oil since October 2017.

“The number of E&P bankruptcy filings has continued to drop off as most financially distressed producers have restructured their debt, either through the bankruptcy process or outside of bankruptcy,” said Energy Practice Co-Chair Buddy Clark. That said, he added, “the magnitude of some recent producer filings show that the increase in oil prices since 2016 has not been enough for some larger independents to pull out of the financial death spiral caused by the oil price collapse that started in late 2014.”

Separately, Haynes and Boone released updated data on bankruptcy filings by energy companies that likewise point to a modest improvement in the energy markets. Haynes and Boone tracks bankruptcy filings by energy companies in three databases that it updates periodically: the Oil Patch Bankruptcy Monitor, which tracks filings by oil and gas producers; the Oilfield Services Bankruptcy Tracker, which covers filings by oilfield services companies; and the Midstream Report, covering midstream companies. The updated Haynes and Boone bankruptcy reports summarize filing data through the first quarter of 2018.

Haynes and Boone Partner Charles A. Beckham Jr. said that the recent Haynes and Boone energy bankruptcy reports further underscore a trend in which most companies, especially the larger producers, are entering into negotiations with creditors in advance of bankruptcy to gain support for their restructuring, thereby reducing the uncertainty and length of time companies spend in bankruptcy.