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Shale oil company considers bankruptcy amidst revenue slump

The steep slide in oil prices has affected the shale oil industry in the United States. Several of the high-profile companies in the industry may consider bankruptcy reorganization or even liquidation. The industry has a fair share of companies operating in the Pennsylvania shale fields.

One of the highest profile companies, SandRidge Energy Inc., confirmed that it has hired consultants to make a decision on a bankruptcy filing. The consultants will assist in putting together a plan for either a private restructuring or a reorganization under Chapter 11 of the bankruptcy laws. In a securities filing, the company admitted to substantial doubt about its financial stability.

The tight market has hit revenues and seriously decreased oil and gas production. SandRidge and other companies have had to pull back their plans for new drilling projects, which creates a substantial drop in output. The company has had to sell off some assets and has exercised job-cutting measures. The Oklahoma-based company is about $3.6 billion in debt.

The company was a pioneer in the fracking boom, but its stock has gone from more than $60 per share to 10 cents. It is unclear at this time whether the company can raise enough financing in the bankruptcy to survive. It does not appear that there is a good prospect for increased revenue in the near run. If a healthy reorganization cannot be engineered, the company will at some point have to convert the Chapter 11 to a Chapter 7 liquidation proceeding.

Pennsylvania companies in the shale oil industry can also consider filing for reorganization under the bankruptcy laws. If the circumstances do not point to a possibility of reorganizing the debt structure sufficiently to emerge from bankruptcy, a company will likely have to turn to liquidation. In some instances, a stabilization of the industry may assist companies that are in bankruptcy to more easily reorganize and regain a viable position in the industry.

Source: reuters.com, "SandRidge eyes bankruptcy, restructuring in U.S. shale bust", Arathy S Nair and Terry Wade, March 30, 2016

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