Page 12 - NorthAmOil Week 26

NorthAmOil COMMENTARY NorthAmOil

profitability of its new oil assets. McClendon after he left Chesapeake.
“Chesapeake was the undisputable master of Sable said last week that it had secured debt-
US shale gas. The massive financial burden of or-in-possession (DIP) financing of $150mn to
investing first into the shale gas boom, then its fund its operations during the restructuring and
failed attempt to grow a similar strong position that it was working with advisers and stakehold-
on oil plays, have brought the giant to its knees,” ers on establishing the way forward.
said Rystad Energy’s head of analysis, Per Mag- The three companies are the latest in a grow-
nus Nysveen. ing list of bankruptcies in the North American
The producer now hopes that it will emerge oil and gas industry since 2015, many of which
from bankruptcy protection with a considera- are shale drillers. According to law firm Haynes
bly lighter balance sheet. In a June 28 statement, and Boone, more than 200 North American oil
Chesapeake said the restructuring support and gas producers, owing over $130bn in debt,
agreement it had reached with its lenders would had filed for bankruptcy between the beginning
allow it to eliminate around $7bn of its debt. of 2015 and May 2020. This year alone, at least
“We are fundamentally resetting Chesa- 20 companies had gone bankrupt by May. More
peake’s capital structure and business to address are anticipated to follow.
our legacy financial weaknesses and capital- However, analysts have cautioned not to Analysts have
ise on our substantial operational strengths,” interpret these bankruptcies as marking the
Lawler stated. demise of the shale industry – merely a confir- cautioned not to
mation of the shift in the way the industry oper- interpret these
Bankruptcies rise ates. Shale drillers have already spent recent
Lilis, for its part, had $115mn in debt under its months focusing on prioritising returns over bankruptcies
revolving credit agreement as of the end of 2019. growth, and demonstrating fiscal restraint. The
The company, which is a pure play Permian latest bankruptcies appear to confirm that this is as marking the
Basin producer, announced this week that the now the way forward.
restructuring plan it had agreed would eliminate “US shale players have been weakened by the demise of the
almost $35mn of its debt. fall in oil prices, but the assets and know-how shale industry.
Lilis cited the downturn in commodity prices remain in place and the US financial industry is
during the coronavirus (COVID-19) pandemic dynamic,” a BCS Global Markets analyst, Ron-
as the reason for its Chapter 11 filing, saying ald Smith, said in a note.
it had explored a variety of options for cutting “The sector is not dead, and the US will
costs, improving its liquidity and addressing benefit for years to come from the low-cost
debt maturities. resource that Chesapeake helped find,” a
Sable’s bankruptcy filing, meanwhile, is managing director at consultancy RS Energy
another symbolic development given its links Group, Andrew Gillick, was quoted by the
to McClendon. Sable was previously Per- Financial Times as saying. “But the excitement
mian Resources, which in turn was once part around shale has officially died today with the
of American Energy Partners – founded by Chesapeake filing.”™

P12 www. NEWSBASE .com Week 26 02•July•2020