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 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.
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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.
(Reporting by Ernest Scheyder and Terry Wade; Editing by David
Gaffen and David Gregorio)
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