Asset Sales | Russell T. Rudy Energy LLC
According to a recent article in “World Oil”, the prolonged and painful crash in the oil patch is incenting many shale operators to finally considered selling some of their prized properties. As the depth and duration of the oil price collapse becomes apparent, asset valuations are falling and the willingness of owners to part with them is increasing.
One-sixth of independent oil and gas producers are currently spending 20% of their revenues on debt service. For a few companies, 30% of revenues are earmarked for interest expenses. As hedge contracts are expiring, banks are reducing credit lines. Operators are faced with selling assets or facing higher interest rates, if in fact, credit is available.
According to Omar Samji with the law firm of Jones Day, “These companies are starting to be a little more realistic about their situation and to face up to the fact that they will probably have to do something they don’t want to do.”
Low, but still volatile, prices make valuations of entire companies difficult, but a trend toward individual asset sales seems to be emerging. EOG Resources is auctioning acreage in Colorado and Wyoming, Anadarko is weighing offers, and Chesapeake is looking to sell dry gas acreage in Ohio’s Utica shale. W&T Offshore just announced the sale of Permian Basin properties in West Texas for $8,000 per acre; a mere fourth of the going rate a month ago.
The trend toward property sales will only continue, if not intensify. According to bond rating firm Moody’s Inc., one out of eight oil companies is in danger of default as a result of last month’s price downturn. In fact, Bloomberg Intelligence reports that last month the industry had seven downgrades and three defaults.
Shahid Ghauri with law firm Jones Walker, concludes that “The valuation of some of these companies may be too high. That’s why we could start to see some more deal activity in distressed situations.”
To read the article in its entirety, please go to http://www.worldoil.com/news/2015/9/10/shale-drillers-turn-to-asset-sales-as-early-swagger-wanes .
