Distressed Investing Opportunities; Dangers In The North American Oil & Gas Sector

0
Distressed Investing Opportunities; Dangers In The North American Oil & Gas Sector

Kirkland & Ellis LLP presentation from Grant’s Conference titled, “Distressed Investing Opportunities; Dangers In The North American Oil & Gas Sector.”

Executive Summary

  • Since June 2014, the price of oil has decreased approximately
    50%, from a WTI price of over $100/bbl to $40-$50/bbl today.
  • As of April 3, 2015, the price of oil ranged between $49.14 (WTI) and $54.95 (Brent).
  • The current pricing environment presents serious challenges for North American exploration and production (“E&P”) companies, with additional ramifications in the oil field services sector and other related industry segments.
  • Most E&P companies are projected to be considerably overlevered in 2015.
  • Companies with debt maturities scheduled to ripen in 2016 may have difficulty refinancing their debt.
  • Tightened liquidity and capital expenditure reductions will cause further damage, as the shale-driven North American oil & gas industry cannot sustain earnings without continued drilling.
  • These distressed conditions present significant opportunities for investors to offer E&P companies creative solutions to address liquidity needs.

Oil & Gas Market Update

  • The downward trend in commodity pricing has been precipitated by a global supply/demand imbalance, which widened in 2014 and which some have predicted may persist for an extended period.
  • This trend was compounded by OPEC’s November 2014 decision not to implement a production decrease that would have moderated falling oil prices.
  • While some E&P companies have hedges in place to protect cash flows through the end of 2015, fewer have the same protection into 2016.

E&P Sector Background

  • The North American oil and gas industry recently has been driven by the shale boom.
  • A typical shale well has steep production declines of over 50% in the first year.
  • Earnings naturally decline unless E&P companies continue to drill new wells.
  • Therefore, the North American shale revolution requires constant injections of new capital in order to grow or even maintain revenue.

  • Most E&P companies are financed with a combination of common stock and debt. However, capital structures vary widely, depending upon the company’s maturity.
  • In the start-up stages, pure-play E&P companies often rely on equity raises as their primary financing method.
  • Historically, additional capital raises often have included the use of IPOs.

See full PDF below.

Carlson Capital Thinks The SPAC Boom May Be Over [Q1 Letter]

Black DiamondCarlson Capital's Black Diamond Arbitrage Partners fund added 1.3% net fees in the first quarter of 2021, according to a copy of the firm's March 2021 investor update, which ValueWalk has been able to review. Q1 2021 hedge fund letters, conferences and more At the end of the quarter, merger arbitrage investments represented 89% of Read More


No posts to display