If industry pundits are correct, sunny days – and full coffers – are expected for the oil and gas sector.
More than three-fourths of industry participants surveyed by Haynes and Boone expect borrowing capacities to increase at oil and gas companies – with 36 percent of respondents predicting borrowing bases to jump by 20 percent or more.
The firm said that optimism is on par with its earlier spring survey and other recent surveys, which predicted producers will see borrowing base increases of 10 percent to 20 percent.
“The survey shows that optimism for the upstream oil and gas industry is really gaining momentum,” energy finance practice head Kraig Grahmann said as part of the study’s release Wednesday.
Haynes and Boone has conducted the twice-a-year survey since April 2015. The participants include oil and gas producers, oilfield services companies, energy lenders and private equity firms.
The poll also found that strong oil prices have led companies to hedge, with two-thirds of respondents indicating that borrowers have locked in prices for the majority of their 2019 production.
Those surveyed also expect producers to use cash flow from operations, bank debt and private equity as their primary sources of capital next year, which was unchanged from the firm’s spring survey.
The participants’ most frequently cited concern – at 42 percent – was midstream capacity constraints, which make it difficult to get production to market. That worry was followed by rising costs of oilfield services (19 percent), commodity price volatility (17 percent), cost of capital (9 percent) and trade war tensions (6 percent).
“In prior years, producers were worried about a sudden drop in commodity prices or high costs of oilfield services,” Grahmann said.
As part of its energy roundup report, Haynes and Boone also reported that bankruptcy filings by North American oil and gas producers continued to decline from the surge that followed the oil price collapse beginning in late 2014. The firm said there were 70 filings in 2016 versus 24 in 2017 and 22 so far this year.
Since the beginning of 2015, 160 North American oil and gas producers have filed for bankruptcy, 142 of which were in the U.S., the firm reported. In North America, the cases amounted to $92.9 billion in secured and unsecured debt.
Texas was bankruptcy central, with more than $46.56 billion worth of filings in the state between 2015 and 2018 versus $22.56 billion in Delaware and $18.59 billion in New York.
Forty-three of the bankruptcy exits were accomplished through 363 sales ($11.7 billion) while 39 were completed through debt-to-equity swaps ($62.9 billion) and 21 through Chapter 7 liquidation ($8.6 billion).
Despite fewer recent filings, the debt administered was substantial, Haynes and Boone said, with the amount in the first three quarters of 2018 surpassing the total during all of last year.
In oilfield services, there have been 172 bankruptcies filed in North America since the beginning of 2015 involving $56.4 billion in debt, or $320 million on average, the firm found. Most of the cases were filed in New York ($21.6 billion) with $18.1 billion in Texas and $15.8 billion in Delaware.
Haynes & Boone said some of the largest oilfield reported bankruptcy cases involved debt of $8 billion (Seadrill Ltd.), $5.3 billion (Odebrecht), $3.7 billion (Ocean Rig), $3.4 billion (CGG Holding), $3 billion (Pacific Drilling), $2.8 billion (Vantage), $2.5 billion (Paragon Offshore), $2.3 billion (Tidewater) and $2.1 billion (Tervita).
In the midstream, 24 entities have filed for bankruptcy in the U.S. since the beginning of 2015 involving $20.4 billion in debt, the firm said. Most have been filed in Texas ($9.58 billion) followed by New York ($5.85 billion), Delaware ($2.84 billion) and the Virgin Islands ($1.98 billion).
Haynes and Boone also studied class action royalty litigation in the U.S. shale plays. It found that 96 putative class actions have been filed since 2001, most of which were litigated in federal court.
The firm reported that oil and gas producers have settled class actions for more than $80 million over the past five years. Most of the cases alleged underpayment of natural gas royalties, as opposed to oil royalties.