The wave of bankruptcies that swept across the U.S. oil and gas industry in 2015 and 2016 has ebbed, but the recent slump in commodity prices points to caution signs ahead, according to Haynes and Boone LLP.

The law firm, which tracks U.S. exploration and production (E&P), oilfield services (OFS) and midstream bankruptcies, earlier this month issued its latest trio of reports concerning filings from the beginning of 2015 through 2018. 

Because the downturn in commodity prices has in general persisted for several months, the firm said it is tracking “industry developments of significance” for, among others, borrowers, lenders, private equity firms and investment funds.

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“Optimists can point to many positive data points to argue that the bulk of E&P bankruptcies are behind us,” energy practice Co-Chair Buddy Clark said.

“Many companies have restructured their debt, reduced leverage, enforced greater capital discipline to live within cash flow, and from a timing standpoint, have been able to revise 2019 drilling budgets to factor in a lower price expectation, thereby reducing total number of expected wells to be drilled to conserve cash.”

However, partner Charles A. Beckham Jr. noted that “pessimists have their own set of alternate facts that would augur an opposite trend for the industry. Wellhead prices for natural gas remain anemic, with little expectation for near-term increases on a seasonally adjusted basis.”

More than 100 energy industry-related bankruptcy filings were made in the United States between 2015 and 2016, the law firm estimated. Since then, the number of filings decreased sharply, with 24 in 2017 and 29 last year.

Over the entire three-year period, 167 E&Ps filed for protection since Haynes and Boone began tabulating filings, which involved about $96 billion in aggregate debt through the end of 2018. 

“Despite fewer filings, the debt administered in recent E&P filings is substantial and the total amount of debt administered in 2018 surpasses 2017 filings,” which hit $13.3 billion last year versus $8.5 billion a year earlier.

“This downward trend in bankruptcy filings mirrored the upward trend in commodity prices over the last four-year cycle,” the firm noted.

However, the 40% downturn in 4Q2018 in West Texas Intermediate oil prices from the beginning of October to to Dec. 31 “may portend rougher times ahead...Realists will take a wait-and-see approach.”

For the OFS sector from 2015 through 2018, the firm tracked 175 bankruptcies with total aggregate debt of around $57.4 billion.

Last year OFS filings decreased to 12 with aggregate debt of $3.85 billion, compared to 2017’s 40 filings and debt of $35 billion.

“The announcements by a number of public companies of significant reductions in their 2019 exploration and production budgets does not augur well for many oilfield service companies’ prospects,” the firm said.

The midstream sector “has not suffered the same level of distress” as that experienced by E&Ps or the OFS sector. As of year-end 2018, 25 midstreamers had filed for protection since 2015 “involving around $20.4 billion in cumulative secured and unsecured debt (including debt of related affiliates),” Haynes and Boone noted.