http://www.reuters.com/article/us-usa-shale-telecoms-idUSKCN0XV07V
[In April, it was major coal companies filing for bankruptcy. This
month, it appears to be the turn of oil companies. I suspect the next
few months will see the disappearance of several Canadian mid-size oil
patch players in the wake of the Fort McMurray forest fire. Latest
surge of violence in Nigeria will also claim some corporate victims,
although nothing like the number of people being injured and killed.]
Wed May 4, 2016 9:27pm EDT
Related: World, Environment
U.S. oil industry bankruptcy wave nears size of telecom bust
HOUSTON | By Ernest Scheyder and Terry Wade
The rout in crude prices is snowballing into one of the biggest
avalanches in the history of corporate America, with 59 oil and gas
companies now bankrupt after this week's filings for creditor protection
by Midstates Petroleum and Ultra Petroleum.
The number of U.S. energy bankruptcies is closing in on the staggering
68 filings seen during the depths of the telecom bust of 2002 and 2003,
according to Reuters data, the law firm Haynes & Boone and
bankruptcydata.com.
Charles Gibbs, a restructuring partner at Akin Gump in Texas, said the
U.S. oil industry is not even halfway through its wave of bankruptcies.
"I think we'll see more filings in the second quarter than in the first
quarter," he said. Fifteen oil and gas companies filed for bankruptcy in
the first quarter.
Some oil producers appear to be holding on, hoping the price of crude
stabilizes at a higher level. In February, oil slumped as low as $27 a
barrel from peaks above $100 a barrel nearly two years ago. U.S. crude
has recovered somewhat, and on Tuesday was trading a little below $44 a
barrel. [O/R]
Until recently, banks had been willing to offer leeway to borrowers in
the shale sector, but lately some lenders have tightened their purse
strings.
A widely predicted wave of mergers in the shale space has yet to
materialize as oil price volatility makes valuations difficult, and
buyers balk at taking on debt loads until target companies exit bankruptcy.
The telecom and energy boom-and-bust cycles have notable parallels.
Pioneering technology brought an influx of investment to each industry,
a plethora of new, small companies issued high levels of debt, and a
subsequent supply glut sapped pricing just as demand fell sharply.
Neither this crash nor the telecom crack-up in the early 2000s rival the
housing and financial bust in 2007-2009 in terms of magnitude and
economic impact. But losses for energy investors in the stock and bond
markets in the last two years are significant. It remains unclear how
long it will take to get through the worst of the declines, and who will
be left standing when it is over.
A 60 percent slide in oil prices since mid-2014 erased as much as $1.02
trillion from the valuations of U.S. energy companies, according to the
Dow Jones U.S. Oil and Gas Index, which tracks about 80 stocks. This has
already surpassed the $882.5 billion peak-to-trough loss in market
capitalization from the Dow Jones U.S. Telecommunications Sector Index
in the early 2000s.
In the debt market, there are also signs that lots of money could be
lost this time around, especially in high-yield bonds.
During its boom, U.S. oil and gas companies issued twice as much in
bonds as telecom companies did in the latter part of the 1990s through
the early 2000s.
Between 1998 and 2002, about $177.1 billion in new bonds were sold in
the U.S. telecommunications sector; less than 10 percent were junk
bonds. U.S. oil and gas companies sold about $350.7 billion in debt
between 2010 and 2014, the peak years of the oil-and-gas boom, with junk
bonds making up more than 50 percent of all issuance, according to
Thomson Reuters data.
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