Bracing for bankruptcy

Mar 11, 2015

While most oil and gas operators and service companies are reducing expenses to keep costs down, some companies are beginning to falter due to financial distress.

This month alone, two Houston-based companies, BPZ Energy (which trades under the name BPZ Resources) and Cal Dive International, have filed for chapter 11 bankruptcy protection.
Houston-based BPZ Energy filed its request in the US bankruptcy court for the Southern District of Texas on 9 March 2015.

The company, which explores primarily on-and offshore Peru, cited a number of reasons for the bankruptcy filing, including the lower oil price environment, which severely impacted its ability to find financing.

“Our efforts to negotiate additional financing to fund business activities and pursue identified strategic alternatives were further impeded when oil prices plummeted and production growth faltered, creating additional obstacles to our restructuring efforts,” said BPZ Energy President and CEO Manolo Zuniga, this week when the company announced its decision.

In November, BPZ Energy reported in its 3Q 2014 results that it had sustained a net loss of $51.4 million over the first nine months of the year. During the same time period the year prior saw a net loss of $47.7 million. In 2012, (for the nine-month period ending 30 September) BPZ Energy reported a net loss of $52.9 million. However, that year saw both the farm-out on the Z-1 block, which affected sales volumes, as well as increased geological, geophysical and engineering expenses.

In the company’s reserves report in February 2015, it said: “While estimates reflect rising oil prices throughout the year, given the current low commodity price environment we are executing in a number of areas to manage our cash expenditures,” Zuniga said. “This includes further reducing administrative costs, reducing operating costs with our partner, reaching out to the Peruvian oil and gas authorities for discussions on extensions for work commitments, assessing the appropriate capital budget for our portfolio of assets, and working with our advisors on financing alternatives."

Despite the oil price, BPZ Energy celebrated the spud of a new well at the Albacora development, offshore Peru, in January. The Z-1 block, which includes the Albacora field, is also home to BPZ Energy’s Corvina field, which is producing through the CX-11 and CX-15 platforms. The CX-15 is a self-installing buoyant tower solution developed by GMC Ltd. and subcontractor Horton Wison Deepwater.

The CX-15 development saw many delays before startup that were attributed to both weather and sea conditions, as well as what Zuniga cited at the time as “the usual learning curve on starting up a new platform.”

The Z-1 block covers 739,205 gross acres in Peru’s Tumbes Basin. The area is a difficult one to develop because it is known as an active earthquake location on the Pacific Ring of Fire, said Clyde Crochet, a project manager for GMC Inc., in December 2013 article for OE. Other challenges included cost due to site distance from established fabrication and marine infrastructures.

BPZ Energy President and CEO Manolo Zuniga

BPZ Energy acquired 100% interest and operatorship in block Z-1 in 2005. In 2012, it sold 49% stake in the block to Canada’s Pacific Rubiales Energy, who recently dispelled rumors about its own debt obligations back in January. The Canadian-based, Latin American-focused explorer said it plans to reduce its capex by $200-$400 million to match expected cash flow.

Matthew Jurecky, GlobalData’s head of oil and gas research and consulting, wrote for OE in February that this new lowered oil price period will continue to add more stress to companies struggling with debt.

“Those with financial obligations greater than cash flows from operations and especially those who’ve depended on debt for growth will become increasingly distressed,” Jurecky said. “The more prolonged the period of low oil prices, the more exposed companies will be.”

BPZ Energy isn’t the only one feeling the effects of the industry’s latest down turn. Houston-headquartered marine contractor Cal Dive International and its US-based subsidiaries filed simultaneous bankruptcy petitions in a Delaware court on 3 March 2015.

Cal Dive's Chairman, President and CEO Quinn Hebert attributed the need to file for bankruptcy protection to several adverse events in 2014 beyond the company’s control, including the suspension of two large projects, weather disruptions and even delays caused by other contractors.

"With our current capital structure, we are no longer able to financially withstand the industry downturn,” he said in early March. “Because these contracts contain milestone billing provisions, these delays and suspensions impeded our ability to invoice and collect payment for work performed, significantly impairing our liquidity which had already been reduced by declining industry conditions over the past several years.

“Our efforts to negotiate additional financing to fund business activities and pursue identified strategic alternatives were further impeded when oil prices plummeted, creating an additional, unexpected obstacle to our restructuring efforts. After considering several alternatives, we felt the Chapter 11 process was the most effective way to maximize value for our stakeholders,” Hebert said.

Cal Dive said it intends to sell non-core assets and reorganize or sell as a going concern its core subsea contracting business. The company plans to continue to operate as usual, including completing the existing construction projects in Mexico for Pemex.

On 20 February, Canada’s Ivanhoe Energy filed for protection under the country’s Bankruptcy and Insolvency Act. Ernst & Young Inc. has been selected to monitor and assist Ivanhoe’s restructuring efforts.

Prior to the bankruptcy protection filing, Ivanhoe had partnered with SBM Offshore on a concept to commercialize a FPUSO (Floating Production, Upgrading, Storage and Offloading facility) that utilizes Ivanhoe’s Heavy to Light (HTL) technology. The technology would be integrated into the vessel’s topsides, allowing heavy oil to be upgraded. SBM Offshore said that the solution would significantly improve the economic viability of offshore heavy oil by creating a synthetic crude oil which is of greater value to international refineries. There is no word yet on how the bankruptcy filing will impede commercialization efforts on the project.

Images: BPZ Energy

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