Investors are facing US$19 billion in energy defaults because the worst oil crash inside a generation leaves drillers can not stay afloat.
Don’t let the rally fool you: Commodity information mill headed for an enormous debt cliff
The debt burden is growing for a lot of miners and drillers no matter how hard they pump and dig – a conundrum that holds grim consequences for 2016. Read on
The wave could begin within days if Energy XXI Ltd., SandRidge Energy Inc. and Goodrich Petroleum Corp. neglect to reach agreements with creditors and shareholders. Those are three of at least eight gas and oil producers which have announced missed debt payments, triggering a countdown to default.
“Shale was a hot growth area and firms made the error of borrowing too much,” said George Schultze, founder and chief investment officer of Schultze Asset Management in Ny, that has been betting against several distressed energy companies. “It’s amazing that so many people were willing to lend them money. Many are going to file for bankruptcy, and bondholders and equity are going to get wiped out en masse.”
Bondholders are paying dearly for backing a shale boom which was built on high-yield credit. Because the oncoming of 2015, 48 oil and gas producers have gone bankrupt owing more than US$17 billion, based on law firm Haynes and Boone. Fitch Ratings Ltd. predicts US$70 billion of energy, metal and mining defaults this year, and notes that US$77 billion of one’s bonds are bid below 50 cents, based on an email Thursday.
A representative at Energy XXI declined to comment. Representatives for SandRidge and Goodrich didn’t respond to requests seeking comment.
“Absent a material improvement in gas and oil prices or perhaps a refinancing or some restructuring of our debt obligations or other improvement in liquidity, we may seek bankruptcy protection,” Energy XXI said in a March 7 public filing.
Restructuring Plan
Goodrich Petroleum is asking shareholders and bond investors to approve a restructuring deal that would convert its personal debt and preferred shares into common stock. For the intend to work, shareholders must approve it in a March 14 meeting and enough bondholders have to participate through the March 16 exchange deadline.
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“Absent a successful completion of the recapitalization plan, the organization may have no alternatives other than to find protection with the bankruptcy courts,” Walter Goodrich, chairman and ceo, said on the March 9 conference call.
Missed charges and potential defaults include:
Energy XXI, with US$2.875 billion in debt, and SandRidge Energy, which owes US$4.131 billion, both failed to pay interest due Feb. 16 and will default unless they reach agreements with their creditors by March 17.Ultra Petroleum, which owes US$3.197 billion, said last week it’s until April 30 to hammer out a deal using its lenders.Goodrich Petroleum, which owes US$455 million, said now that it won’t pay interest due March 15 and April 1, and that it’s asking bondholders and shareholders to sign up inside a restructuring plan.Chaparral Energy Inc., with US$1.798 billion in debt, missed a payment on March 1, starting the clock on the 30-day grace period.Pacific Exploration & Production Corp., with US$5.428 billion indebted, likewise has ’till the end of the month under extra time granted by its creditors.Venoco Inc., facing US$708 million in debt, skipped a pursuit payment recently. The organization must cut an offer with creditors by March 17.Warren Resources Inc., which owes US$453 million, said last month that it may declare bankruptcy with no creditor deal. The company faced a default on March 2, whenever a 30-day grace period for a missed interest period have been set to expire.
A representative at Pacific declined to comment. Representatives for Warren Resources, Ultra Petroleum, Chaparral and Venoco didn’t return calls and e-mails requesting comment.
“Asset managers bought the story that we’d have US$100 oil forever,” said Tim Gramatovich, chief investment officer with Peritus Asset Management in Santa Barbara. “Bondholders are left holding the bag.”
Bloomberg.com
