Wall Street Journal Runs Philip Dublin Article on Restructurings for Oil and Gas Cos.
The Wall Street Journal has published the most recent response by Akin Gump financial restructuring partner Philip Dublin to questions posed in its series “The Examiners,” which focuses on bankruptcy and financial restructuring matters.
In this installment, Dublin answers the question “How much stress can we expect to see for oil and gas producers and related companies as a result of the current low prices? And what special issues does this industry face when it’s time to restructure or file for bankruptcy?”
Dublin states that, “While a number of exploration and production companies will need to restructure in the near term and a handful of companies have already sought bankruptcy protection, the severity with which these companies and their service providers will need to restructure likely will not be extreme.”
He does note, however, that should prices not recover in the next year, there will likely be increased liquidity issues that will trigger more restructurings.
Dublin notes that oil and gas companies face unique issues as compared with enterprises in other industries. Among these, he includes:
- the fact that “financing is typically reserve-based,” and reserve values are “affected by a number of factors, including…most importantly, ‘the price deck’ applied to future production”
- the extent to which reserves are encumbered by pre-petition liens and its impact on availability of financing
- exploration and production companies’ ownership position in their leases.