It does not seem that long ago that the Marcellus Shale was discovered in Pennsylvania and the oil boom began. Range Resources – Appalachia, LLC drilled the first Marcellus Shale well in Washington County, Pennsylvania in 2003. By 2007, more than 375 permits were issued in Pennsylvania for the purpose of capitalizing on the Marcellus Shale play. By the end of 2008, the average cost per barrel was around $100. In the past six months, oil prices have reached an all-time low. On February 11, 2016, crude oil was selling at $26.21 per barrel. Clearly, it is difficult to ignore the effects of low oil costs. Consumers have enjoyed lower prices at the gas pump, while nearly every facet of the oil and gas industry has struggled to survive. Low oil prices have forced oil and natural gas companies to downsize, dissolve, and file bankruptcy at an alarming rate. Bankruptcy filings from the oil and gas sector are up more than 300% with more filings on the horizon.
The Marcellus Shale boom and the rise of oil prices has caused Pennsylvania’s economy to flourish. The U.S. Bureau of Labor Statistics reported that over 6,000 jobs were created in Pennsylvania between 2007 and 2012. Recently, however, the region’s newspapers have been rich in stories about law firms closing entire branches that previously focused on oil and gas title matters and multiple rounds of layoffs by oil giants such as Consol Energy. Although it seems that the end of the boom was inevitable, oil and gas companies appeared hopeful until late 2015. In 2015, CNN Money reports that at least 67 oil and natural gas companies in the United States filed for bankruptcy. Among the oil and gas companies that filed for bankruptcy, the average debt was $406 million dollars. So how is it that a giant oil and gas company finds itself in the throes of financial ruin atop one of the most plentiful oil plays in the country? The answer is the same in all bankruptcies: debt.
At the height of Marcellus boom, and when crude oil prices were generally high, oil and gas companies were borrowing great amounts of money to get their operations off the ground. Now, these companies are starting to realize that they will not be able to pay off these debts in the foreseeable future. When prices were high, oil and gas companies had more money than they knew what to do with. Many southern companies, like Texas-based Anadarko and Southwestern, found that it was necessary to open offices in Pennsylvania to handle the abundance of work and meet the demand in the region. Southpointe suburban business park near Canonsburg, Pennsylvania, is a great example of this expansion. Although development of the area started as long ago as the early nineties, Southpointe is now home to oil giants including Range Resources, Noble Energy, Rice Energy, and EQT. Range Resources has cut nearly 100 jobs, just this year; Noble Energy has cut over 200 jobs since last winter; and Consol Energy just sold a coal mine in order to breathe life back into its stock that has recently been trading for less than $10 dollars a share. These companies, however, are still in business.
Marietta, Ohio-based Triad Hunter, LLC, an operating subsidiary of Magnum Hunter Resources, Corporation, filed for bankruptcy in December 2015. Triad Hunter filed a voluntary petition for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware. Under Chapter 11 petition for relief, a debtor proposes a plan of reorganization so that the business can continue operating and pay its creditors over a period of time. Under this plan, the debtor remains in charge of its assets and without the assistance of a trustee until the plan is confirmed, the case is dismissed, or converted to a Chapter 7 bankruptcy. In the case of an oil and gas company, there are many intricacies and factors that are unique to the industry. In the case of a company like Triad Hunter, LLC, there are countless numbers of lessees who Triad will owe money to. These lessees, in the case of a bankruptcy, become creditors and can assert claims against the company. Between the astounding number of possible creditors and the daunting task of reorganizing millions, even billions of dollars worth of assets, the Bankruptcy Court will find itself facing unprecedented issues in the coming year.
The sources utilized in this article are as follows.
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