Energy & Environment

Oil Companies Under Pressure As Price Remains Low, Attorney Says

Lawyer Bill Wallander speaks with energy reporter Kyra Buckley about potential bankruptcies and restructuring in the Texas oil and gas industry.

An Exxon station in Houston. Gas prices continue to drop as oil hovers around $20 per barrel.

With Texas oil hovering around $20 per barrel, some experts say bankruptcies and layoffs in the oil and gas industry could be ahead. Already the industry has seen furloughs, and companies are looking for solutions as the coronavirus and international supply disputes negatively impact the energy industry.

Attorney Bill Wallander focuses on restructuring and reorganization. He’s with the Houston-based firm Vinson & Elkins, which works with oil and gas companies. He spoke to energy reporter Kyra Buckley. (This interview has been edited and condensed for clarity.)

In terms of the oil and gas industry, have you seen an increase in inquiries about bankruptcy or restructuring?

There’s certainly been an increase in the inquiries, yes. And there’s also been issues in cases that are currently pending that were already dealing with the drop in oil prices.

What qualities make a company ready to weather something like this?

Liquidity drives it. When the price falls this far, the company has a liquidity issue to the extent that they’ve not hedged their production, so that they can have a buffer from the hedges that they have in place and the hedges they put in through the futures markets to assure cash flow and get cash flow off of the hedges if the price falls.

What things make a company vulnerable right now?

The decline in the revenues, unless adequately hedged, puts a lot of pressure on any company, and then it’s a question of how and what its stakeholder, creditor, and equity constituencies can and are willing to do in terms of seeking a means to restructure, forebear, things like that, to see if they can find a way to keep the company operating without the need for a sale or a reorganization process.

But when you get prices that are this low and this intense, if it persists long enough, it does have a tendency to create an acute amount of pressure on options for the company.

Were stakeholders already preparing? Were you preparing?

It’s easy to predict the future, it’s just really hard to make sure you’re right. I would say there were a number of parties, just as a matter of prudence and, having been in the industry and dealt with the industry, I don’t think this retrenchment was a surprise to a lot of people. What made this one particularly difficult, however, is that what happened overseas with the Saudis and the Russians was an extremely aggressive pricing act that has been committed. And the coronavirus impact and what it's doing—I'm pretty confident that once it was here and people understood the ramifications and the shelter in place, they figured out what would happen. But think of how quickly that just happened here. Sixty days ago was a different world versus today on the coronavirus and the impact on us economically.

So anticipating a pandemic before it starts, I mean, we can talk about at what point people might have figured it out given what was what was happening. But in terms of market timing and market duration and the energy business, the pandemic may as well have happened in one minute.

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Kyra Buckley

Kyra Buckley

Energy Reporter

Kyra Buckley is an Energy Reporter with Houston Public Media. Before joining the News 88.7 team she was the Morning Edition Host and a reporter at KUNC in Northern Colorado. She started in public radio in her hometown of Eugene, Oregon where she hosted Weekend Edition and reported for KLCC....

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