New Generation Research’s BankruptcyData has been monitoring U.S. Bankruptcy Court activity for 25 years now, and its most recent free e-report offers 40+ pages of detailed statistics and analysis of the ever-changing landscape in the battered energy sector. BankruptcyData notes that the shale-driven resurgence of the U.S. energy industry hit a big obstacle in mid-2014 when oil prices began their precipitous decline. After years of relatively steady $100/barrel oil, the price dropped nearly 75% to a February 2016 low of $26/ barrel. In short order, oil and gas company revenues dropped by almost 50%.
As earnings and stock prices declined dramatically, the industry reacted by cutting capital expenditures, deferring projects and slashing expenses by reducing headcount and pushing suppliers for lower prices. The sharp pull-back in drilling activity, combined with some discipline from OPEC, started affecting oil production and helped prices recover to the low $50s by mid-2016.
With the industry in its worst downturn in decades, energy companies dominated the bankruptcy landscape. Over 60% of the assets that filed for bankruptcy during 2014-2016 and nearly 50% of the total number of public company bankruptcies were from the energy industry (historically, the energy industry accounts for just 2-15% of public company bankruptcies). Also, these companies were often very large: 15 of the top 20 bankruptcies came from the energy industry.
Top 20 Bankruptcies – All Industries (2015-2016)
| Company |
Assets |
|---|---|
| Caesars Entertainment Operating Company, Inc. |
$11,676,400,000 |
| SunEdison, Inc. |
11,499,800,000 |
| Peabody Energy Corporation |
11,021,300,000 |
| Alpha Natural Resources, Inc. |
10,736,148,000 |
| LINN Energy, LLC |
9,976,946,000 |
| Doral Financial Corporation |
8,493,454,000 |
| Arch Coal, Inc. |
8,429,723,000 |
| Samson Resources Corporation |
5,608,312,000 |
| Walter Energy, Inc. |
5,386,129,000 |
| Breitburn Energy Partners LP |
4,872,412,000 |
| Energy XXI Ltd |
4,690,829,000 |
| Offshore Group Investment Limited |
3,507,372,000 |
| Republic Airways Holdings Inc. |
3,494,000,000 |
| Halcon Resources Corporation |
3,458,692,000 |
| Paragon Offshore plc |
3,253,389,000 |
| SandRidge Energy, Inc. |
2,991,155,000 |
| China Fishery Group Limited |
2,652,800,000 |
| Molycorp, Inc. |
2,575,986,000 |
| RCS Capital Corporation |
2,466,628,000 |
| Sabine Oil & Gas Corporation |
2,438,350,000 |
Not only were energy bankruptcy filings among the largest Chapter 11 petitioners, this industry also dominated overall filing totals: Public company energy-related bankruptcies represented just over 50% and 40%, respectively, of 2015 and 2016’s total public company bankruptcy counts. Detailed statistics and analysis are available in Energy Sector Bankruptcies.
BankruptcyData anticipates that overall bankruptcy activity will remain at a high level for the foreseeable future. Energy company filings have probably peaked and will gradually decline over the next 12 to 18 months. The flow of bankruptcies will likely shift toward a more diverse group of industries. The low interest rate environment since 2009 has led a wide range of companies to accumulate nearly $1.5 trillion of lower quality debt that will come due over the next five years.
Not all of that debt will be repaid or refinanced. If debt markets and the economy remain healthy, perhaps only a small percentage will require restructuring through Chapter 11. However, if debt markets become more selective or if the economy pressures cash flows, bankruptcy filings could increase significantly. In time, this would contribute to an opportunity-rich market for distressed debt and post-reorganization stocks.
Download the free Energy Sector Bankruptcies e-report directly to your browser.
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