The oil and gas industry was already facing a squeeze before Saudi Arabia initiated a price war with Russia and the COVID-19 pandemic hit. But, with demand lower because of shelter-at-home orders and many worksites screeching to a halt, those oil and gas companies, or any economically distressed company, must take steps now to ensure that they have the capital and knowledge to last the next few months and beyond.
Having been a bankruptcy lawyer for more than 35 years, I have seen the full spectrum of boom and bust, both in the energy industry and beyond, several times over. While this economy presents unique challenges, I can say this without fear of contradiction: These challenges are not insurmountable.
Nevertheless, the combination of economic crises Texas is now facing will likely fuel corporate restructuring at all levels for years to come. Even before the pandemic, bankruptcy lawyers were preparing for a surge in oil and gas bankruptcies and reorganizations. Just as we assist oil and gas companies during the lowest price of oil in decades, we help businesses of all sizes and across many industries emerge as successfully reorganized debtors – companies that are better prepared to rebuild the economic growth lost in recent months.
Based on my decades of advising at-risk companies, these are my recommendations to those looking to survive:
First, immediately assess cash and other liquid assets you have on-hand. Drawdown on available credit lines. How many weeks or months can you withstand a slowdown or shutdown?
Identify what steps you can take to extend and create new cash and liquidity. The recently passed Coronavirus Aid, Relief, and Economic Security Act provides a $2 trillion economic stimulus for businesses and citizens as they face the challenges of COVID-19, and additional state and local funds may be available. Determine if relief will happen fast enough to save your company. Explore every possible source of liquidity.
Identify your stakeholders and determine what kind of leverage you have over parties critical to the survival of your business and recognize that you have at least some leverage with creditors. What motivates a particular stakeholder? What leverage can you expect your stakeholders to exercise?
Defer expenses. Landlords are more likely to negotiate in this environment. Your banker may be willing to defer loan payments or renegotiate your loan because of historically low interest rates and the availability of funds. Ask vendors to delay payment when possible. It may be easier to negotiate with groups of similarly situated vendors rather than one-on-one.
Franchisors may offer help at the corporate level to franchisees. Many times, landlords, lenders or vendors would rather have reduced or deferred payments than no payment at all, specifically if it is part of a clear path forward for the company. Convey your plans to your key stakeholders weekly. In most cases, your critical stakeholders have much to lose by your demise.
Developing a roadmap to deal with different issues, depending on how long the economy suffers, allows management to be prepared and makes dealing with the short-term issues easier.
Do not be afraid to seek the help of professionals. The sooner you know your options, the better your opportunity for a successful result.
Remember that just because you consult a bankruptcy lawyer does not mean you will be filing bankruptcy. For every client we put into bankruptcy, dozens involve out-of-court workouts with creditors. There are many options available, even in the worst of situations. Knowing your company’s financial options can be liberating. Bankruptcy can be a valuable tool, but it is usually the last resort.
In summary: Know the landscape of every potential opportunity or challenge. While there are more than enough of the latter, be aware that there will also be plenty of the former. Seek professional advice from an experienced bankruptcy and reorganization attorney and remember that experience matters.
Jeff Prostok is a founding partner of Forshey Prostok LLP, a bankruptcy and litigation boutique with offices in Fort Worth and Dallas. Mr. Prostok concentrates his practice in the areas of business reorganizations, debtor and creditor rights, bankruptcy litigation, and refinancing and acquisitions of troubled companies and is Board Certified in Business Bankruptcy Law by the Texas Board of Legal Specialization. Mr. Prostok has served as counsel for companies and individuals involved in a variety of industries, such as oil and gas, healthcare, manufacturing and retail. He can be reached at jprostok@forsheyprostok.com.