After two years of hunkering down, struggling U.S. oilfield service providers are preparing for an expected oil-price recovery in an unexpected way: filing for bankruptcy. Companies that drill wells, haul water and provide other services to energy exploration firms have been waiting out a slump in oil prices by idling machinery, laying off workers and extending deadlines for repaying debts.
Now they are turning to Chapter 11 creditor protection to shed debt and raise cash so they can spend and invest again. Without bankruptcy, many of small and medium-sized service companies risk missing out on any upturn that could follow President-elect Donald Trump's pro-drilling agenda or OPEC's plan to cut oil production for the first time in eight years, restructuring advisors said.
"You've got some zombie companies out there," said Jay Krasoff, a managing director with Chiron Financial in Houston. "You have to give counterparties confidence you'll be in business to do their work. That's what's going on." Through the end of October, about 70 mostly private energy service companies have filed for Chapter 11 this year, up from 39 in all of 2015, according to Haynes & Boone, a law firm that specializes in energy restructuring. As the pace of filings accelerates, the size of companies restructuring in bankruptcy is also increasing. In June through October, nine companies with at least $100 million in debt filed for Chapter 11, with a total of $9 billion in liabilities, according to Haynes & Boone. That exceeded the total for the prior 18 months, which came to $8.2 billion in debt from seven filings with at least $100 million in debt. In all, energy services companies have restructured about $18.7 billion in bankruptcy. By comparison, the 20 companies in the Dow Jones U.S. Oil Equipment & Services Index .DJUSOI have a combined $82.6 billion in debt, according to Thomson Reuters data. Read more
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