Fed-up creditors seek to put US energy's zombies into bankruptcy

Wed Dec 23, 2015 1:06pm EST
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By Tom Hals

WILMINGTON, Del (Reuters) - Rising financial stress in the U.S. energy sector has prompted some suppliers and vendors to take unusual legal action to collect unpaid debts: forcing struggling companies with billions of dollars in debt into bankruptcy.

Since August, creditors have filed petitions for involuntary bankruptcy against three energy producers with nearly $2 billion in combined debt: Miller Energy Resources Inc MILLQ.PK, Black Elk Energy Offshore Operations [BLCELB.UL] and Energy & Exploration Partners Inc ENXP.N.

During that period, there have been a total of seven bankruptcies involving energy companies with at least $200 million in debt.

Involuntary bankruptcies signal deepening pessimism about the crude market outlook and herald more distress for oil and gas producers if prices stay low.

Petitions for involuntary bankruptcy, which seek to impose court oversight on a company that is not paying its debts, are very rare and typically target smaller operations. Over the past decade, they accounted for less than 1 percent of the tens of thousands of business bankruptcies filed each year, according to the Administrative Office of the U.S. Courts. (Graphic:tmsnrt.rs/1T1XJ1e)

Involuntary bankruptcies targeting large companies are particularly unusual. Over the past 12 years, creditors have taken such action against only six public companies. Four of those were filed this year. In addition to Black Elk and Miller Energy, creditors have also filed for involuntary bankruptcies against two public companies embroiled in litigation: a casino operator and a property firm.

"The downside risks are extreme," said Mark Salzberg, a bankruptcy attorney with Squire Patton Boggs in Washington. If a judge dismisses a petition for involuntary bankruptcy, the debtor company can seek its legal costs and punitive damages against the creditors that filed it.

But recently creditors have been willing to take that chance in a sign of receding hopes for an oil market rebound.   Continued...