Why the Kansas Oil Industry Could Face a Wave of Bankruptcies

Posted on September 7, 2015 at 12:00pm by

The last time the price of oil fell towards $40, it was 2009 and the U.S. economy was stuck in one of the most brutal recessions in decades. For small to medium-sized oil companies, the price per barrel is now so low that operating costs are no longer profitable. This could make paying back creditors and securing new loans exceptionally difficult in the very near future.

The volatile market has several Kansas oil companies begging for a turnaround in oil prices so they can once again become profitable and avoid the prospect of becoming insolvent. Colt Energy of Mission has seen revenues drop 60 percent in just the last year, and 15 to 20 percent of the company has been let go. Another company that operates in Kansas, SandRidge Energy, has seen dramatic stock price drops and reportedly holds a debt of $4.4 billion.

Some oil companies are facing bankruptcies, layoffs and other serious financial problems. According to a senior analyst at Energy Prospects, credit lines for many of these companies could be cut if banks decide the oil industry is not profitable at current prices. Many of these loans are coming up for renewal in early October. If prices drop lower or stay at current lows, companies with lots of debt and high interest payments could face bankruptcy.

What Options Are Available For Struggling Oil Companies?

An Oklahoma-based oil and gas company, Samson Resources Corp., is expected to file for Chapter 11 bankruptcy this month. According to local press, the company holds $4 billion in debt and has a $110 million interest payment that has come due. As part of the Chapter 11 bankruptcy, ownership will be handed over to lenders Silver Point Capital, Cerberus Capital Management and Anschutz Investment Co.. However, the struggling company will be allowed to continue operating.

If oil companies in similar situations are attempting to survive until prices rise, Chapter 11 bankruptcy might provide a way to continue operations until the industry becomes profitable again.

The Sader Law FirmKansas City Bankruptcy Attorneys