US energy bankruptcy surges despite recovering oil prices

HOUSTON (Reuters) – The wave of US oil and gas bankruptcies surged past 60 this week, an ominous sign that the recovery of crude prices to near $50 a barrel is too little, too late for small companies that are running out of money.

On Friday, Exco Resources Inc, a Dallas-based company with a star-studded board, said it will evaluate alternatives, including a restructuring in or out of court. Its shares fell 35 percent to 62 cents each.

Exco’s notice capped off one of the heaviest weeks of bankruptcy filings since crude prices nosedived from more than $100 a barrel in mid2014.

Prices have bounced back to $46 a barrel from February lows in the mid-$20s, but the futures market shows investors do not expect US benchmark crude to rise above $50 for more than a year.

That will not help smaller producers built for far higher prices. These companies have largely exhausted funding alternatives after issuing more equity and debt, tapping second-lien loans and shedding assets over the last two years to stay afloat as banks trimmed credit lines.

Some companies are in more acute distress, faced with the expiration of derivative contracts that had allowed them to sell oil above market prices.

“Everybody was able to hold on for a while,” said Gary Evans, former CEO of Magnum Hunter Resources, which emerged from bankruptcy protection this week. “But once the hedges roll off you can’t support that debt.”