$19 billion default wave poised to come crashing down as debt catches up to oil boom

Investors are facing US$19 billion in energy defaults as the worst oil crash inside a generation leaves drillers can not stay afloat.

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The wave could begin within days if Energy XXI Ltd., SandRidge Energy Inc. and Goodrich Petroleum Corp. fail to reach agreements with creditors and shareholders. Those are three of at least eight gas and oil producers that have announced missed debt payments, triggering a countdown to default.

“Shale would be a hot growth area and firms made the error of borrowing too much,” said George Schultze, founder and chief investment officer of Schultze Asset Management in Ny, which has been betting against several distressed energy companies. “It’s amazing that a lot of people were prepared to lend them money. Most are likely to seek bankruptcy relief, and bondholders and equity are likely to get wiped out en masse.”

Bondholders are paying dearly for backing a shale boom which was built on high-yield credit. Since the start of 2015, 48 gas and oil producers go bankrupt owing more than US$17 billion, according to law firm Haynes and Boone. Fitch Ratings Ltd. predicts US$70 billion of one’s, metal and mining defaults this year, and notes that US$77 billion of one’s bonds are bid below 50 cents, according to a note Thursday.

A representative at Energy XXI declined to comment. Representatives for SandRidge and Goodrich didn’t respond to requests seeking comment.

“Absent a material improvement in gas and oil prices or a refinancing or some restructuring of our debt obligations or any other improvement in liquidity, we may seek bankruptcy protection,” Energy XXI said in a March 7 public filing.

Restructuring Plan

Goodrich Petroleum is asking shareholders and bond investors to approve a restructuring deal that will convert its unsecured debt and preferred shares into common stock. For the intend to work, shareholders must approve it in a March 14 meeting and enough bondholders need to participate through the March 16 exchange deadline.

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“Absent an effective completion of the recapitalization plan, the organization will have no alternatives apart from to seek protection through the bankruptcy courts,” Walter Goodrich, chairman and ceo, said on the March 9 conference call.

Missed charges and potential defaults include:

Energy XXI, with US$2.875 billion in debt, and SandRidge Energy, which owes US$4.131 billion, both didn’t pay interest due Feb. 16 and can default unless they reach agreements using their creditors by March 17.Ultra Petroleum, which owes US$3.197 billion, said a week ago it has until April 30 to hammer out an offer with its lenders.Goodrich Petroleum, which owes US$455 million, said now it won’t pay interest due March 15 and April 1, and that it’s asking bondholders and shareholders to participate in a restructuring plan.Chaparral Energy Inc., with US$1.798 billion indebted, missed a payment on March 1, starting the time on a 30-day grace period.Pacific Exploration & Production Corp., with US$5.428 billion in debt, likewise has until the end of the month under extra time granted by its creditors.Venoco Inc., facing US$708 million in debt, skipped a pursuit payment recently. The organization must cut an offer with creditors by March 17.Warren Resources Inc., which owes US$453 million, said last month that it may file bankruptcy with no creditor deal. The company faced a default on March 2, whenever a 30-day grace period for any missed interest period had been set to run out.

A representative at Pacific declined to comment. Representatives for Warren Resources, Ultra Petroleum, Chaparral and Venoco didn’t return calls and e-mails requesting comment.

“Asset managers bought the story that we’d have US$100 oil forever,” said Tim Gramatovich, chief investment officer with Peritus Asset Management in Santa Barbara. “Bondholders are left holding the bag.”
Bloomberg.com