They’re still waiting
The second act isn’t easy for companies that try to survive bankruptcy
Though oil prices have risen since the oil bust, some companies are still struggling.
More than a year after exiting bankruptcy, SandRidge Energy is stuck in stock market purgatory.
The oil and gas explorer has seen its stock plummet since October 2016, despite a restructuring that wiped out $4 billion in debt. Activist investor Carl Icahn is threatening a proxy fight and plans to run a slate of directors against the current board. SandRidge recently 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 of Oklahoma and Ultra Petroleum Corp. of Houston 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 NatAlliance Securities in Austin. “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 law firm Haynes & Boone. For those that resumed trading, returns haven’t been stellar:
SandRidge may be the poster child. In November, the shale driller proposed a $750 million purchase of another post-bankruptcy company, Bonanza Creek Energy. Icahn blasted the deal as overpriced, and the plan was scrapped by December. Within weeks, CEO James Bennett was let go.
In February, investors pitched a shotgun-wedding merger between SandRidge and another bankruptcy graduate, Midstates Petroleum Co. SandRidge rejected the offer, but said it was open to others.
Neither SandRidge, Midstates nor Ultra responded to requests for comment, but here’s what observers see holding back recoveries:
Unloved acreage: For many bankruptcy survivors, much of their acreage is outside the coveted Permian Basin in Texas and New Mexico. It doesn’t help that much of the companies’ production leans toward natural gas, which hasn’t experienced the same rally as oil. Short-term shareholders: Bankruptcies typically wipe out original stockholders and leave businesses with different ones — creditors who’ve debt transformed into equity. Many new owners have neither experience in energy nor the commitment to a particular explorer to stick it out. A not-so-clean slate: Bankruptcy is supposed to let companies start over with a cleaner financial slate, but that’s not always the case. Ultra emerged from Chapter 11 in April 2017 and promptly took on about $2 billion in debt to pay some creditors to avoid further dilution for shareholders. As a top shareholder pushed for changes to the board, CEO Mike Watford announced his retirement in January. Complex finances: The explosion in shale also sparked an explosion of new credit lines, bonds and equity to fund the drilling, making negotiations more complex.“It’s harder to figure out how to avoid bankruptcy or how to move on after one because the capital structures are so much more layered,” said Haynes & Boone lawyer Charles Beckham Jr.
“A lot of these companies didn’t have very good assets to begin with.” Leo Mariani, NatAlliance Securities