U.S. shale producers, refiners and pipeline companies are scrambling for cash and face likely bankruptcy as they struggle under heavy debt loads and a dual supply/demand shock in the worst crisis the oil industry has faced.
The industry was already struggling to satisfy investors unhappy with weak returns, even as the United States surged to become the world’s largest oil producer in the last few years.
Approximately half of the top 60 independent U.S. oil producers will likely need to review options for securing more liquidity, according to energy lawyers at Haynes and Boone.
“The reverberations from this price collapse will be felt throughout the industry and by everyone who provides services to the industry,” said Buddy Clark, an Houston-based partner at the firm.
Companies that used debt to fund acquisitions before prices crashed, such as oil giant Occidental Petroleum Corp , are focusing on placating shareholders and preserving cash.
Numerous midstream companies backed by private equity are in danger of bankruptcy, according to some of the more than a dozen industry and financial sources Reuters spoke to for this article, while large banks are preparing to become owners of oil and gas fields as they seize energy assets.
One midstream company, Salt Creek Midstream, which operates in the Delaware basin in Texas, had already hired Jefferies Financial Group and law firm Kirkland & Ellis for debt advice before the week’s events, according to three sources aware of the matter, speaking on condition of anonymity to discuss non-public information.
PRODUCERS AND PIPELINES
Privately held pipeline operators are considered the most vulnerable among midstream companies, bankers said.
As shale producers hit bankruptcy, they’re expected to try to use court proceedings to exit pipeline contracts which charge transport fees based on oil and gas prices well above current levels, according to Buddy Clark and Charles Beckham, another Haynes and Boone partner.
Privately owned Glass Mountain LLC earlier this month sued troubled producer Chesapeake Energy for allegedly defaulting on an oil transportation contract, according to court documents.
