For some drillers, like SandRidge, the oil rout never ended
More than a year after exiting bankruptcy, Sand-Ridge Energy is stuck in stock-market purgatory.
The oil and gas explorer has seen its stock sink 37 percent since October 2016, despite a restructuring that wiped out $4 billion in debt. Activist investor Carl Icahn is threatening a proxy fight, and last week SandRidge rejected a merger that would have valued the once $11 billion company at just $589 million.
For drillers trying to return from the fiscal brink, it’s a familiar plight. Even with global crude prices climbing, bankruptcy survivors such as SandRidge and Ultra Petroleum have found a second act’s not so easy. The companies have endured stock crashes, executive purges and shareholder revolts as investors learn the U.S. shale boom can’t save every player.
“The bottom line is a lot of these companies didn’t have very good assets to begin with,” said Leo Mariani, an analyst at Nat-Alliance Securities in Austin, Texas. “You can go through bankruptcy and wipe away debt and that’s all well and good, but the assets they ended up with are still not very attractive.”
Since 2014, when crude began a historic slide, at least 134 North American oil and gas companies have declared bankruptcy, according to Dallas-based law firm Haynes & Boone LLP. For those that eventually resumed trading, returns have been less than stellar:
SandRidge may be the poster child. In November, the Oklahoma shale driller proposed a $750 million purchase of another post-bankruptcy company whose stock has fallen, Bonanza Creek Energy Inc. Icahn blasted the deal as overpriced, and the plan was scrapped by late December. Within weeks, Chief Executive Officer James D. Bennett was let go.
In February, a group of investors pitched a shotgun-wedding merger between SandRidge and yet another bankruptcy graduate, Midstates Petroleum Co. SandRidge rejected the offer on March 19 but said it was open to other bids.
So what’s gone wrong? Requests for comment weren’t returned by SandRidge, Midstates, or Ultra, but here’s what observers see holding back recoveries:
Even the healthiest explorers have seen stocks languish recently, amid worries about a global oil glut. Worse still for many of the bankruptcy survivors, much of their acreage is outside the coveted Permian shale basin in Texas and New Mexico. SandRidge and Midstates, for example, have land in Oklahoma that’s proved less desirable, said Tim Rezvan, a Mizuho Securities USA analyst.
“You had some creditors not realizing how fragile the returns were in each shale play and how contingent they were on an $80 oil price,” Rezvan said by telephone. “Companies that hitched their wagons to the wrong resource play, it’s going to be difficult for them.”
It doesn’t help that much of the companies’ production leans toward natural gas, which hasn’t experienced the same rally as oil.