Oil prices might have bounced more than 50% to over $US45 a barrel in the past four months, and US oil production continues to slide, but that has done little to ease the continuing pressure on the sector.
Companies large and small are still hacking at expenses, staff, cutting exploration and development plans and hunkering down as the collapse in crude oil prices that began in June, 2014 has taken an increasing toll.
That’s despite the rebound in prices since the lows around $US27 a barrel in late January and early February which have proved to be illusory for many companies.
US production is falling (the major swing producer) and even forecasts of a sharp fall in the global stock overhang later this year and in 2017 can’t help some of these struggling companies.
Cash flows remain strained, debt costs burdensome and for many companies, failure is the most logical ending.
And so it was for Texas based group, Linn Energy, which has become the 72 North American oil and gas producer to collapse since the start of 2015, and with the biggest debt.
For much of the past six months it has been struggling to survive and has moved closer and closer to collapse, which was finally allowed to happen on Wednesday in the US.
Up to Linn’s collapse, 71 companies had failed in Canada or the US since the start of last year, with the biggest concentration in the southern Texas area.
According to US legal firm, Haynes and Boone (which keeps a count of the failures). More than $US34 billion in debt was involved in the failures up to the end of April.
May 2 saw two more companies, Midstates and Ultra with around $US5.8 billion of debt in total fall over.
Linn said it had debts of around $US9.3 billion, but that it had already reached agreement with creditors to restructure its debt, and that it planned to continue normal operations during the restructuring process. The extra debt in the three failures so far this month takes the total amount of debt involved to around $US50 billion.
“Like many others in our industry, Linn has been impacted by continued low commodity prices,” chief executive Mark Ellis said in a statement.
“We believe that these steps will provide us the financial flexibility to successfully manage in the current commodity price environment and, when combined with constructive agreements with our remaining creditors and potential third party financing, will provide a platform for future growth.”
The Houston-based company filed for Chapter 11 bankruptcy protection in US federal court in Texas. In its court filing, Linn estimated its liabilities at $US10 billion – $US50 billion, with assets of $US1 billion – $10 billion. The company said in a statement in February that it had $US9.3 billion in debt.
Linn focuses its exploration and production efforts in the Colorado Rockies, California, Hugoton Basin, Mid-Continent, Permian Basin, east Texas and north Louisiana, Michigan, Illinois and South Texas. Many of the other companies to have failed operate in the same area, or the Bakken fields of North Dakota.
