'Chapter 22' looms over some U.S. oil and gas bankruptcy survivors

Wed Nov 23, 2016 2:37am EST
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By Jessica DiNapoli

(Reuters) - At Global Geophysical Services LLC headquarters in a Houston suburb, a few employees are winding down what is left of an oil and gas industry data provider that only three years ago had a staff of more than 1,000 and offices around the world.

Global Geophysical is a "Chapter 22" company - a term coined by restructuring experts for firms that return to bankruptcy court after their first Chapter 11 overhaul failed to fix their problems.

A casualty of high debt and a cash crunch, the company filed for bankruptcy in early 2014 before tumbling oil prices pushed scores of other energy firms over the edge. Last year, it became one of nearly 20 companies that have already exited bankruptcy, but is now one of the first to have filed for creditor protection again.

Restructuring specialists say companies, which like Global Geophysical failed to wipe their balance sheets clean in a bankruptcy, are at a risk of a relapse.

In Global Geophysical's first bankruptcy, a fight among creditors was in part to blame for leaving it with more than $100 million in debt it could not shed, according to people familiar with the matter. That proved too much in a still volatile market and led to the company's liquidation.

In other cases, creditors refused to swap all debt into shares, wary of further damage from the slump, or approved plans that were too optimistic. Some critics say bankruptcy judges too often focus on hammering out an agreement without paying enough attention to companies' chances of long-term survival.

"While a great deal is being done to fix balance sheets, the question constantly becomes is it going to be enough," said Charles Beckham Jr, a bankruptcy attorney at Haynes and Boone LLP in Houston and New York.

More than 200 energy companies have filed for creditor protection since the beginning of 2015, according to Haynes and Boone LLP. Of those with initial debt loads of at least $450 million, nearly 20 have exited bankruptcy.   Continued...

A pump jack is seen at sunrise near Bakersfield, California October 14, 2014.   REUTERS/Lucy Nicholson/File Photo