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Unit Corp. files for bankruptcy as energy firms continue to struggle

Unit Corp.- Bankruptcy

The OklahomanUnit Corp. files BK. – The energy pricing shock caused by an economic shutdown because of the COVID-19 pandemic is sending energy companies — both big and small and public and private — to bankruptcy court.

Most recently, Tulsa-based Unit Corp. filed Chapter 11 bankruptcy voluntary petitions in the Houston-based division of the U.S. Bankruptcy Court for the Southern District of Texas.

Meanwhile, Houston-based Echo Energy Partners, a firm with ties to a local energy company called Echo Energy, filed a Chapter 11 bankruptcy petition in the same court March 24.

Chesapeake Energy also has announced it is considering bankruptcy but hasn’t yet launched a restructuring effort.

Jake Dollarhide, CEO of Tulsa-based Longbow Asset Management, said bankruptcies are being seen across various economic sectors.

“I can’t even keep up,” Dollarhide said this week, noting that besides Unit, other major corporations such as Advantage Rental Car, Neiman Marcus, Hertz and JCPenney also recently took bankruptcies to court.

Certainly, he added, the energy industry isn’t immune.

“The oil and gas industry has been under a barrage of attacks for a decade because of stubbornly low natural gas prices and, the past six or seven years, low prices for oil.

“Now, it has turned into a triple-headed monster, when you factor in the shock the economic shutdown created by COVID-19 has caused. It has been abysmal,” he said.

Unit Corp.

In a release it issued on May 22, Unit Corp. officials stated the company intends to use the Chapter 11 bankruptcy process to shed more than $650 million in debt.

Meanwhile, they said they expect the company, which explores for and produces oil and natural gas and provides contract drilling and natural gas gathering and processing services, will continue to operate normally without causing any material disruptions to its vendors, customers, or partners.

Officials also noted Unit’s bankruptcy does not affect Superior Pipeline Co. or its subsidiaries, of which it owns 50%, and won’t have an impact on payments made to suppliers or vendors of its subsidiary, Unit Drilling Co.

Officials said they filed the petitions after reaching a restructuring support agreement with holders of more than 70% of the company’s outstanding 6.625% senior subordinated notes, due to be retired in 2021, as well as all of the lenders who participate to fund the company’s senior credit agreement.

The company plans to exit the process with a $180 million financing facility.

“Like many companies in the oil and gas industry, we have felt the impact of the severe downturn in commodity prices, which has only worsened with the COVID-19 pandemic,” David T. Merrill, Unit Corp.’s CEO, stated as part of its announcement.

“While facing this challenging environment, we have worked diligently to explore a variety of strategic alternatives to cut costs, improve our liquidity and address near-term debt maturities.

“We are pleased to receive the support of our lenders and noteholders and are confident that, on emergence from Chapter 11, we will be better positioned to meet our challenges and realize the potential of our company.”

Is Chesapeake next?

On May 11, Chesapeake Energy Corp. announced in a first-quarter earnings filing it made with regulators that bankruptcy was an option it was considering.

The company reported posting a net loss of about $8.3 billion — about $853 a share — for the first quarter of 2020.

As it continues to contend with weak oil and natural gas prices, Chesapeake already has cut some bonuses for senior executives, but also has created a quarterly bonus incentives program for its rank and file employees.

The company has about 1,900 employees.

Beyond using bankruptcy to restructure its debt, other options the company is considering include taking itself private.

As of Thursday, Chesapeake hadn’t announced a definitive plan.

But Doug Lawler, Chesapeake’s CEO, sent employees an email to reassure them that the company isn’t going anywhere.

“We are working with advisors to best position the company for the future, including exploring strategic alternatives to address our capital structure,” he wrote. “Our goal in this process is to finally align our capital structure with the quality of our people, assets and operations.”

As for bankruptcy, Lawler wrote, “It is important that you understand that if that were to happen, we would continue to operate our business as usual, and you would continue to be paid and receive benefits.”

Echo Energy

Despite national reports to the contrary, Oklahoma City’s Echo Energy is solidly prepared for the future.

A bankruptcy filed by Houston-based Echo Energy Partners, which worked with the local company, won’t impact the Oklahoma City company, its CEO said on Thursday.

“Our principal business is owning mineral rights,” said Christian Kanaday, who counts Echo among the top three privately-owned companies that hold that kind of asset class in Oklahoma.

He said the company is also working on launching new energy industry-related technology, and, under Kanaday’s leadership, is working with various other business leaders, local researchers and experts from Harvard and Duke to develop a “START” (Smart Testing and Analysis to Return Tomorrow) Coalition that will analyze the best ways to reopen the country and reduce risks of a second wave of COVID-19 infections through increased testing and tracking efforts in the Oklahoma City area.

The coalition aims to lessen the virus’ threat until a vaccine is created and to also come up with long-term preventive measures as experts seek a cure.

As for the partnership, managed by John T. Young Jr. It holds non-operating oil and gas interests in more than 700 horizontally drilled producing wells in Oklahoma, the majority of which are located in natural gas-heavy areas of the Anadarko Basin.

Echo Energy had been providing operational support for about 50 of those wells, a bankruptcy filing submitted by the partnership stated.

“We weren’t completely blindsided by this thing (the energy collapse), and that helped us to be more resilient to the shock wave of COVID-19,” Kanady said.

Looking ahead

Zac Reynolds, the chief investment officer at Full Sail Capital in Oklahoma City, said this week that energy industry executives he has spoken with believe Oklahoma’s energy industry saw its most recent peak in employment about a half dozen years ago, and likely won’t ever return to that level.

However, he said those same people are telling him that now is the time to start a new energy company.

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