(Repeats for wider distribution)
By Tom Hals and Tracy Rucinski
Dec 8 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
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 have
a combined $82.6 billion in debt, according to Thomson Reuters
data. (Graphic: tmsnrt.rs/2ftVbQ2)
The biggest oilfield service providers - such as Halliburton
Co and Schlumberger Ltd - have the scale to
ride out the production glut, despite losing more than 40
percent of their revenue since oil prices peaked in mid-2014.
In a recovery, they can also respond more quickly than
smaller companies that spent the past two years hibernating
through the downturn, according to restructuring advisers.
Hoping the energy sector has turned a corner, major U.S.
producers such as Occidental Petroleum Corp, Chevron
Corp, Pioneer Natural Resources Co and
ConocoPhillips are preparing to add rigs.
A bankruptcy filing allows a service company to restructure
under a court-supervised process in as little as two months.
Creditors generally take ownership of the companies in return
for forgiving debt, and shareholders generally lose all or
nearly all of their investment.
"From a competitive advantage a lot of the service companies
had to do that," said Steven Person, the chief executive officer
of exploration company American Standard Energy.
Person has served as an officer and director of energy
service companies, including until 2004 at Basic Energy Services
Inc, which completes oil and gas wells and transports
and disposes of fluids.
Basic Energy filed for Chapter 11 in October with a plan
backed by its creditors to convert $825 million in debt to
equity and raise more than $100 million in cash. Its
confirmation trial is on Friday.
David Johnston, a managing director of AlixPartners, has
been advising Basic Energy and said in court papers the company
opted to file for bankruptcy in part because competitors were.
"Several of Basic's competitors have delevered their own
balance sheets through Chapter 11 processes, thus forcing even
solvent companies to explore similar options to remain
competitive," he said.
Two of Basic's main competitors, Key Energy Services Inc
and C&J Energy Services Inc, filed for
bankruptcy in recent months. Key won court approval on Tuesday
to cut $1 billion of debt to $250 million and exit bankruptcy
and C&J's confirmation trial is set for Dec. 16.
Seventy Seven Energy Inc, which provides drilling
and hydraulic fracturing, or fracking, services, filed for
Chapter 11 in June. By early August, the company had cut its
debt by $1.1 billion and exited bankruptcy under the control of
The company said in its recent quarterly results that it had
doubled its rig count in the past six months.
About half of some 32 oilfield service companies still
trading actively in major stock exchanges are distressed,
including five or six that are severely distressed and likely to
restructure, said Kim Brady, a partner and restructuring adviser
at financial consultancy Solic Capital.
Restructuring advisers said the stigma previously associated
with Chapter 11, which tended to hit companies with serious
problems, has vanished, opening the door to more bankruptcy
"Now it's almost in vogue to be going through Chapter 11,"
said Jerrit Coward, former CEO of fracking services provider US
Shale Solutions LLC who is now advising energy investors.
(Reporting by Tracy Rucinski in Chicago and Tom Hals in
Wilmington, Delaware; Editing by Noeleen Walder and Tomasz