Struggling with heavy debt and deflated oil/gas prices, Houston-based Sabine Oil & Gas Corp. has filed for Chapter 11 bankruptcy protection in New York.

“Like many other exploration and production companies, Sabine’s operations have been significantly impacted by the recent and dramatic decline in oil prices, the continued low prices of natural gas, and general uncertainty in the energy market,” the company said.

“Following a comprehensive review of our alternatives, the board of directors and management team determined that this process would produce the best outcome for Sabine and its stakeholders,” said CEO David Sambrooks. “Undertaking this process provides an orderly path forward to better align the company’s balance sheet with changing market dynamics.”

The company remains in talks with lenders, and Sambrooks said normal company operations are expected to continue.

 “We intend to emerge with increased financial flexibility and a sustainable capital structure that will enable us to devote capital to grow our business,” he said.

Sabine said it expects that cash on hand and funds generated from ongoing operations will provide sufficient liquidity to support the business during restructuring.

The independent’s operations are mainly in Texas in the Cotton Valley Sand and Haynesville Shale in East Texas; Eagle Ford Shale in South Texas and the Granite Wash in the Panhandle, as well as the Haynesville in North Louisiana.

Earlier this year the company announced a forbearance agreement with lenders following a missed interest payment (see Shale DailyMay 22March 16).

Fitch Ratings’ high-yield energy sector default rate continued to climb with the recent Chapter 11 filings of two more exploration and production (E&P) companies, driving the trailing 12-month (TTM) rate more than one-half point higher to 2.6% and the E&P subsector rate to 5.1% from 3.7%, the ratings agency said Wednesday. The default rate includes issuers of high-yield bonds in the United States without regard to the issuer’s domicile.

“Most recently, both Sabine Oil & Gas Corp. and Lightstream Resources Ltd. incurred significant debt to fund drilling programs and their capital structures became unsustainable in the face of lower oil prices,” Fitch said. “Other significant E&P defaults this year include Midstates Petroleum Co., Connacher Oil & Gas Ltd. and Quicksilver Resources Inc. [see Shale DailyMarch 18].”

The TTM energy default rate now exceeds its long-term average of 1.9%, Fitch said. Including the bankruptcy filing of Hercules Offshore Inc. expected by Fitch, the TTM energy default rate is 3.0%, the ratings agency said (see Daily GPI, June 19).