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Shale update


Like a phoenix

Many doubted its ability to weather a sustained period of low oil prices, but the US shale sector has come out of the glut stronger. Melodie Michel reports.


year and a half ago, GTR published an article about how US shale companies could hope to position themselves on the global oil stage, and stressed structural issues that could affect their future. At the time, there were concerns about the high debt levels of the major players, which, combined with what was considered by many as inefficient cost models, were giving cold sweats to many investors. Sure enough, the prolonged oil glut and limited bank willingness to give companies leeway has led to a significant wave of producers going bust. Law firm Haynes & Boone has been tracking North American energy bankruptcies since January 2015, and its latest report dated September 2016 counted 58 cases this year alone, representing about US$50.4bn in cumulative debt. This is added to the 42 companies that folded last year, and despite the recent oil price recovery, the firm expects more filings by the end of 2016.

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Geographic differences According to Doug Getten, a partner in the securities and capital markets practice at law firm Paul Hastings, what has made the difference between success and failure is geography. “Companies that are focused on the Permian and Delaware basins have weathered this incredibly well. If you’re in Bakken shale [located mostly in North Dakota], those operators require higher oil prices for their business to work,” he tells GTR. “I’m working on a restructuring right now so I have a list of exploration and production (E&P) companies that have filed for bankruptcy over the course of the last year, and at the bottom you have Triangle Petroleum, which is Bakken shale, Sandridge and Breitburn are Mid-Continent. It depends on where you are, so when you think about US shale you have to look at the different subsets of the different basins in the country.” According to him, Eagle Ford and Northern Louisiana shale should recover along with oil prices,

November/December 2016 issue  
November/December 2016 issue