Q&A series: Managing energy sector distress

Energy sector distress winners, losers often determined by quality of assets, financial flexibility

In most cycles the energy sector has experienced over the years, winners and losers have been determined primarily by two things -- quality of assets and financial flexibility, says Bill Swanstrom, the co-chair of Locke Lord’s energy practice group, in a Q&A feature package focused on managing energy sector distress.

“A low commodity price environment presents a classic opportunity to see who is really wearing swim trunks when the tide goes out,” Swanstrom says. “Companies that have acquired quality assets at reasonable prices and with reasonable leverage will do fine. Those companies also are likely to have the best access to additional debt and equity financing—enabling them to take advantage of opportunities to buy quality assets from competitors that took on more debt than their assets could support.”

With oil prices stabilizing during the past few weeks— moving slightly in either direction on a daily basis— some benefits have surfaced in the energy sector, according to David Patton, co-chair of the firm’s energy practice. “Several energy companies have accessed the equity markets and high yield debt markets in the last couple of weeks—including some companies that market speculators thought would have a tough time getting new debt and equity.”

This trend is partially the result of less price volatility, Swanstrom and Patton say, “but it also reflects a view by many companies that crude prices are not likely to increase significantly anytime soon—and so they might as well access the markets now if they can, even though they are paying a pretty high price for the financing they are receiving.”

The complete Q&A Series package on “Managing Energy Sector Distress” includes the following features from Swanstrom and Patton, as well as from Ken Simon, managing partner of the firm’s Houston office, and New Orleans Partner Rick Kuebel:

 

 

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