CHAPTER 1 INTRODUCTION: FINANCIAL DISTRESS IN THE OIL & GAS INDUSTRY

• Jurisdiction: United States

Financial Distress in the Oil & Gas Industry
(Feb 2010)
CHAPTER 1
INTRODUCTION: FINANCIAL DISTRESS IN THE OIL & GAS INDUSTRY
C. Mark Brannum
St. Mary Land & Exploration Company
Denver, Colorado

C. Mark Brannum currently serves as Senior Legal Counsel and Secretary for St. Mary Land & Exploration Company. Before joining St. Mary in 2007, Mark was a shareholder with the Texas law firm, Winstead P.C. in their Dallas Office. At Winstead, Mark was the Chairperson for the Firm's Business Restructuring and Bankruptcy Practice Group and was named one of Dallas Best Lawyers by D Magazine and a Texas Super Lawyer. Mark frequently spoke and wrote on issue of insolvency, bankruptcy and business restructuring. Mark received a Juris Doctor with highest honors from the University of Oklahoma and was a member of the Law Review. He is a member of the Order of the Coif. After graduation, Mark served as the law clerk for the Honorable Leif M. Clark, United States Bankruptcy Judge for the Western District of Texas. Mark is currently a member of the Special Institutes Committee for the Rocky Mountain Mineral Law Foundation.

Financial Distress in the Oil & Gas Industry: An Introduction

C. Mark Brannum

St. Mary Land & Exploration Company

Goal is brief introduction:

▪ What happened to the oil & gas industry?

▪ Complicating Factors.

▪ Parties Involved.

▪ Multitude of Complicated Agreements.

▪ What is financial distress?

▪ Characteristics

▪ Strategies

▪ Financial Institutions.

What happened?

▪ June 2007:

▪ NYMEX Natural Gas: $6.00 and $8.00 mmbtu.

▪ NYMEX Oil: $60.00 and $80.00 bbl.

▪ Not a lot of financial distress... very few oil and gas bankruptcies.

In middle of 2008 ...

▪ NYMEX Natural Gas: $14.00 mmbtu.

▪ NYMEX Oil: $140.00 bbl

▪ Not a lot of financial distress ... very few oil and gas bankruptcies.

Then, in June 2008 ...

▪ Prices fall drastically and quickly...

▪ By November/December 2008

▪ NYMEX Natural Gas: Under $6.00

▪ NYMEX Oil: Under $40.00

As a result ...

▪ First Quarter 2009

▪ Projects previously based upon historical pricing no longer economic,

▪ Assets purchased based upon historical pricing no longer as valuable,

▪ Drilling activity is drastically reduced

And then

▪ Financial distress sets into the industry

▪ Oil & gas entity bankruptcies become common place

Complicating Factors

▪ Multitude of Parties:

▪ E&P Companies,

▪ Service Providers,

▪ Midstream.

▪ Very interdependent.

▪ Parties have different...