Shale boom masks oil drillers' ongoing ills

Three years on from a slump in the oil market, prices are back up again and the U.S. has become the world's largest producer. Yet the pain continues for some companies.

The boom in American shale output risks masking ongoing woes at a number of lower-tier explorers, as well as some oil-field servicers. Energy-related bankruptcies this year are trailing only those in the discretionary consumer goods sector, according to Bloomberg data. And some companies are warning of more stress ahead.

Weatherford International PLC, once one of the top providers of oil-well drilling and completion, last week said it was preparing to file for bankruptcy. Shale explorers Halcon Resources Corp. and Alta Mesa Resources Inc. have raised doubts about their ability to stay afloat. Bonds of producer California Resources Corp. are trading at yields of more than 10 percentage points above benchmark U.S. Treasuries, meeting a common definition of distressed debt.

These ailing companies reveal the flip side of the boom. High-cost producers with poor balance sheets are not getting much love from investors who are more focused on demanding returns than pouring more money into shale's expansion, whether through debt or equity. And as producers rein in spending, the less-efficient service providers are struggling.

'There hasn't been the institutional stomach, either at the debt level or the equity level, to go through the open-heart surgery that involves a bankruptcy," Patrick Hughes, a partner at law firm Haynes and Boone LLP, said in a phone interview. "It takes a long time for the boards of these companies to really realize this may be the only way they can clean up the balance sheet."

Weatherford said in a response to questions Tuesday that it's undergoing a "balance sheet" restructuring to address the company's debt burden and that this is "not a restructuring of operations, nor is it a declaration of bankruptcy."

Halcon and California Resources didn't immediately reply to requests for comment. Alta Mesa declined to comment.

Crude's 40% rebound since late December -- to about $60 a barrel in the U.S. and $70 elsewhere in the world -- wasn't enough to prevent debt-burdened Bristow Group Inc. and PHI Inc., providers of helicopter services to offshore explorers, as well as producers Jones Energy Inc. and Rex Energy Corp., from filing for bankruptcy this year.

Information for this article was contributed by Allison McNeely and Rick Green of Bloomberg News.

Business on 05/16/2019

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