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 On Friday, Exco Resources Inc, a Dallas-based company with a
star-studded board, said it will evaluate alternatives, including a
restructuring in or out of court. Its shares fell 35 percent to 62
cents each.
Exco's notice capped off one of the heaviest weeks of bankruptcy
filings since crude prices nosedived from more than $100 a barrel in
mid-2014.
Prices have bounced back to $46 a barrel from February lows in the
mid-$20s, but the futures market shows investors do not expect U.S.
benchmark crude to rise above $50 for more than a year.
That will not help smaller producers built for far higher prices.
These companies have largely exhausted funding alternatives after
issuing more equity and debt, tapping second-lien loans and shedding
assets over the last two years to stay afloat as banks trimmed
credit lines.
Some companies are in more acute distress, faced with the expiration
of derivative contracts that had allowed them to sell oil above
market prices.
"Everybody was able to hold on for a while," said Gary Evans, former
CEO of Magnum Hunter Resources, which emerged from bankruptcy
protection this week. "But once the hedges roll off you can't
support that debt."
Bankruptcy filers this week included Linn Energy LLC and Penn
Virginia Corporation. Struggling SandRidge Energy LLC, a former high
flyer once led by legendary wildcatter Tom Ward, said it would not
be able to file quarterly results on time.
The number of U.S. energy bankruptcies is closing in on the
staggering 68 filings seen during the depths of the
telecommunications sector bust of 2002 and 2003, according to
Reuters data, the law firm Haynes & Boone and bankruptcydata.com.
Linn's bankruptcy was the biggest among energy companies so far in
this downturn, even though the company is a modest producer of about
59,000 barrels of oil per day, and 607 million cubic feet of gas per
day.
Founded in 2003, Linn has about $10 billion in debt, about twice
that of Samson Resources Corp and Energy XXI Ltd, two of the largest
oil and gas companies to file recently.
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Linn was designed as a high-yield investment vehicle, which received beneficial
tax treatment in return for paying out the bulk of its profits to unitholders.
Because of this structure, it took on significant debt to grow through
acquisitions.
Exco's warning showed that the crude price rout has not spared companies with
highly experienced management.
Exco has reported a loss for the last five quarters in a row. It has a number of
big-name board members including billionaire investor Wilbur Ross and executive
chairman John Wilder, who engineered the giant leveraged buyout of TXU.
Valued at about $495 million as of Thursday's stock market close, Exco had
long-term debt of $1.32 billion on March 31, according to a regulatory filing.
One probable outcome, as Exco said on Friday, may include getting rid of debt by
having debtholders become shareholders, possibly wiping out existing equity
owners.
Penn Virginia's strategy is similar. "Once the restructuring is implemented, the
Company will have substantially less debt and a much stronger balance sheet,"
Penn Virginia's Chairman and interim CEO Edward Cloues said in a statement.
(Reporting By Terry Wade; Editing by Luc Cohen and David Gregorio)
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