Source of Anxiety: What Does Energy Company's Bankruptcy Mean for Industry?

By Terry-Cobo, Sarah | THE JOURNAL RECORD, March 18, 2016 | Go to article overview

Source of Anxiety: What Does Energy Company's Bankruptcy Mean for Industry?


Terry-Cobo, Sarah, THE JOURNAL RECORD


OKLAHOMA CITY - A single company's bankruptcy is not necessarily an indication about the oil and gas sector as a whole, said University of Central Oklahoma finance professor Stuart MacDonald.

However, University of Tulsa energy business professor Tom Seng said if petroleum commodity prices don't rise soon, other drillers may not be able to survive the downturn.

New Source Energy Partners filed for Chapter 7 bankruptcy on Tuesday, a proceeding that typically liquidates assets and dissolves the company. MacDonald said the small exploration and production company's insolvency says more about the company's management than the overall health of the sector.

"When you see a bunch of oil and gas companies going broke at the same time, that says more about the industry," MacDonald said.

New Source's oil and gas reserve value dropped in mid-2015 as oil and gas prices plummeted. Creditors slashed its borrowing base by half in October, to $24 million from $49 million. CEO Kristian Kos told analysts in November the company didn't have the cash or collateral to cover the difference. He said then he was working with creditors for a forbearance agreement.

MacDonald said the bankruptcy is a clear indication Kos couldn't renegotiate with lenders.

Seng said there were warnings months in advance that showed New Source was in trouble. The company had a negative debt-to-equity ratio for its third-quarter earnings, the most recent available. …

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