A Glimpse Of Things To Come: Bankrupt Shale Producers "Can't Give Their Assets Away"

Tyler Durden's picture


Over the course of the last several weeks, we’ve spent quite a bit of time sounding the alarm bells on America’s growing list of bankrupt oil and gas drillers.

We’ve also been keen to point out that the long list of cash flow negative US producers has only managed to stay in business this long because Wall Street has thus far been willing to plug the sector’s funding gap with cheap financing thanks to ZIRP and investors’ insatiable demand for anything that looks like it might offer some semblance of yield.

It is not a matter of “if” but rather a matter of “when” the entire complex goes under and when that happens, the relatively paltry sums banks have set aside against losses in their energy books will balloon as everyone on Wall Street simultaneously pulls a BOK Financial.

Indeed, we’re already hearing the not-so-distant rumblings of this oncoming default freight train as JP Morgan raises its net loan loss reserves for the first time in 22 quarters, Wells Fargo discloses $17 billion in “mostly” junk energy exposure, and Citi dodges questions about the reserves it’s holding against a $58 billion energy book that the bank may or may not be marking to market depending on what the Dallas Fed "didn’t" tell banks earlier this month.

M2M or no, higher provisions or not, the end of America’s oil “miracle” is coming and there’s nothing Wall Street can do to stop it. At this point in the game, no one is going to finance these companies’ cash flow deficits and the fundamentals in the oil market are laughably bad. Storage is overflowing, demand is withering, and supply is, well, “drowning” us all, to quote the IEA.

As Bloomberg reports, Wall Street is about to have a serious bout of “indigestion” because recent auctions suggest that “some bankrupt oil and gas drillers can’t give their assets away.”

Bloomberg tells the story of Terry Clark, who “couldn’t be happier” about lower for longer crude.

Clark got the last laugh on Dune Energy whose assets his White Marlin Oil & Gas picked up at a “deep discount” at auction. A year earlier, Dune turned down Clark’s offer to acquire the assets when crude was $100 barrel.

Here’s more on the growing list of bankrupt US oil and gas producers including a bit on American Eagle Energy which, you’re reminded, pulled a Movie Gallery last March by defaulting before making a single interest payment:

Winners and losers are emerging from the energy bust. What’s a meal for Clark is indigestion for banks that financed the boom using oil and gas properties as collateral. The four biggest U.S. banks -- Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. -- have set aside at least $2.5 billion combined to cover souring energy loans and have said they’ll add to that if prices stay low.


There’s plenty to keep Clark bargain-hunting. Last year, 42 U.S. energy companies went bankrupt, owing more than $17 billion, according to a report from law firm Haynes & Boone.


Dune went belly up owing $144.2 million. Its assets sold for $20 million. In May, American Eagle Energy Corp. filed for bankruptcy with debts of $215 million. Its properties sold for $45 million in October. BPZ Resources Inc. owed $275.2 million. Its assets fetched about $9 million.


Endeavour International Corp. went into bankruptcy owing $1.63 billion. The company sold some assets for $9.65 million and handed over the rest to lenders. ERG Resources LLC opened an auction with a minimum bid of $250 million. Response? No takers. Samson Resources Corp. filed for bankruptcy in September, listing $4.2 billion in debt.


With its optimistic ticker AMZG -- earlier incarnations were named Golden Hope Energy and Eternal Energy -- American Eagle is classic shale.


The last few years, the company took advantage of low interest rates and high oil prices, outspending its income and relying on debt to keep drilling. Now the company is part of the bust, selling off acreage for less than it owed its bondholders.


Bankruptcies are accelerating. Magnum Hunter Resources Corp., Swift Energy Co. and New Gulf Resources filed in December. With more liquidations hitting the market, bargain hunters may not be willing to pay top dollar when there are so many deals to be found.

So in short: the bankruptcies are piling up and the assets securing the sector's financing are essentially worthless now that crude is basically free.

Got it.

But banks and lenders needn't be concerned. After all, America's long list of cash flow negative producers are "only" sitting on $325 billion in debt.

Overheard at many a closed-door meeting in lower Manhattan: "We're gonna need a bigger reserve"...

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Wed, 01/20/2016 - 14:23 | 7072856 Impoverished Ps...
Impoverished Psychologist's picture

Shale is a ponzi, and you can't taper a ponzi.

Wed, 01/20/2016 - 14:31 | 7072881 Durrmockracy
Durrmockracy's picture

...well of course drillers can't give away their "assets"!  Who wants a loader or a CAT? 


Only shares of AMZN, TWTR, AAPL have any value!

Wed, 01/20/2016 - 14:32 | 7072892 hedgeless_horseman
hedgeless_horseman's picture



Who doesn't want free tanks of Hydrogen Sulfide?

Wed, 01/20/2016 - 14:44 | 7072931 BaBaBouy
BaBaBouy's picture

The Imperial HOUSE Of SAUD: 1

Usa Shale Frackers/Banks: 0

Wed, 01/20/2016 - 15:04 | 7073047 cheka
cheka's picture

first by inflation...then by deflation

watch nyc 'funds' be created to buy these assets

just like the gigantic landlord funds created to buy up the housing stock a few years ago

Wed, 01/20/2016 - 17:01 | 7073692 Stuck on Zero
Stuck on Zero's picture

Most shale assets are leased with provisions for minimum development. If you stop developing the asset the lease goes away.

Wed, 01/20/2016 - 14:32 | 7072896 BandGap
BandGap's picture

Saw the same shit playing out months ago with Australian mining equipment.

Wed, 01/20/2016 - 14:43 | 7072938 new game
new game's picture

deflation of "valuable stuff", but no free cash flow and demand/markets, ha, keynsian junk, coming to fuition.. where is all that demand krugfuk? oh, yea, moar stimulas, that will do it-tar and feather that bastard and hang him from a lampost..

but groceries, ha that is a different story...

Wed, 01/20/2016 - 15:22 | 7073156 JRobby
JRobby's picture

When there is no demand, try to create demand. When you throw enough money at that, you end up back at no demand. Surprise!

Of course that involves more and more debt!

Wed, 01/20/2016 - 14:25 | 7072862 arbwhore
arbwhore's picture

No intrinsic value.

Wed, 01/20/2016 - 15:58 | 7073333 CPL
CPL's picture

When they've got no water, they've got no business.  Funny how that works out.

Thu, 01/21/2016 - 00:41 | 7075792 azusgm
azusgm's picture

Some are fracking with CO2.

Wed, 01/20/2016 - 14:25 | 7072863 MasterControl
MasterControl's picture

Obama and the saudis are getting thier wish oh wait,  Obama is just a puppet.  I forgot.

Wed, 01/20/2016 - 14:37 | 7072915 Kprime
Kprime's picture

omamma is no puppet, he's a pet monkey,  wait, he might just be a pet rock.

Wed, 01/20/2016 - 14:26 | 7072864 besnook
besnook's picture

time to go shopping. i always wanted some cheap heavy equipment. i bet someone in asia wants some, too.

Wed, 01/20/2016 - 14:33 | 7072898 Lumberjack
Lumberjack's picture

I believe CAT is having a hard time moving previously leased equipment let alone new toys.






I would expect all others are in the same boat. 

Wed, 01/20/2016 - 14:40 | 7072925 SmittyinLA
SmittyinLA's picture

Africa, way less competition

Wed, 01/20/2016 - 15:20 | 7073145 chubbar
chubbar's picture

You aren't going to get a cheap anything unless you are in the top .01%. No one will be allowed to sell assets to the goyim below "fair market value" just like with the housing market. You pay up or the asset gets hidden away in a bad bank or something. The banks aren't playing this game so you can walk off with a tangible asset.

Wed, 01/20/2016 - 14:29 | 7072878 Yttrium Gold Ni...
Yttrium Gold Nitrogen's picture

If we assume that this time shit is hitting the fan for real, then it took about a year for things I remember reading on ZH and elsewhere to develop into real events.

Wed, 01/20/2016 - 15:35 | 7073237 zeroaccountability
zeroaccountability's picture

You're exactly right!  I sold my house 2-27-15, in anticipation of what we are seeing right now... Ok, I was 10 months early....better 1 year early than 1 hour late!!!

Wed, 01/20/2016 - 14:29 | 7072879 Mark Mywords
Mark Mywords's picture

When does Southwestern Energy go "kaput"? I'm actually interested in any substantive information that can be provided.


Wed, 01/20/2016 - 14:45 | 7072946 Rainman
Rainman's picture

Rated 'BBB - ' .... moderate risk of default


Wed, 01/20/2016 - 14:30 | 7072885 rejected
rejected's picture

LOL,,, They might hurt Russia but their killing themselves doing it. The noise they're hearing in the Kremlin is President Putin Laughing.

Wed, 01/20/2016 - 14:59 | 7073015 pipes
pipes's picture

The "hurting Russia" narrative was always bullshit cover, mainly consumed by 'murica types.


This has ALWAYS been about the big boys absorbing all these little guys - and doing it for basically no cost to themselves.



Wed, 01/20/2016 - 15:08 | 7073068 cheka
cheka's picture

big boys....and/or nyc money junkies

nothing like a zero pct cc in your wallet

just like the houses they scoffed up for fraction of value

Wed, 01/20/2016 - 15:15 | 7073115 12357111317
12357111317's picture

I guess it's ALWAYS about big guys absorbing little guys.  And the big guys are the guys who can walk up to the Fed Discount Window anytime they want and load up on free funny money.

Wed, 01/20/2016 - 16:23 | 7073499 Niall Of The Ni...
Niall Of The Nine Hostages's picture

Thing is, the big boys thought Russia was a little guy, a Venezuela with nukes that would fall apart the minute oil prices fell, allowing them to take the oil for a fraction of its value.

Unfortunately for the Saudis, who are fighting a proxy war with Russia in Syria and losing, that didn't happen. Russia is no longer the slave or the social engineering guinea-pig of the west's elites. She's back to reclaim her place among the nations. And she has a lot of accounts to settle---and not just with "Ukraine" for non-payment of oil bills.

She's a big girl now---and ready to show the nancy-boys on Wall Street how real women fight.

Wed, 01/20/2016 - 14:30 | 7072888 agNau
agNau's picture

What happens to oil price when MEGA QE/dollar devaluation is added to market? QE never really ended, but when policy "reversal" is announced
will " it make a noise?"

Wed, 01/20/2016 - 14:31 | 7072891 insanelysane
insanelysane's picture

But future cash flows for these companies were estimated to be infinity-2 just like Apple's future cash flows are estimated to be infinity+3.

Wed, 01/20/2016 - 14:33 | 7072899 sun tzu
sun tzu's picture

Is oil at 20 yet?



Wed, 01/20/2016 - 14:48 | 7072961 scintillator9
scintillator9's picture

Just wait until it is at -20

Wed, 01/20/2016 - 16:15 | 7073456 Niall Of The Ni...
Niall Of The Nine Hostages's picture

It is in Canada. Western Canadian Select is close to USD15 a barrel.

Wed, 01/20/2016 - 14:36 | 7072908 E.F. Mutton
E.F. Mutton's picture

Weird.  Google Earth shows some skinny black dude playing fiddle atop the White House. 

Wed, 01/20/2016 - 14:40 | 7072929 Dr. Engali
Dr. Engali's picture

That's not a fiddle he's playing with, it's Reggie's winky. Google earth makes things a little fuzzy. I can understand your mistake.

Wed, 01/20/2016 - 14:54 | 7072987 American Sucker
American Sucker's picture

Ah yes, the President has firm control over global oil supply and demand, and all that he lacks is the willpower.  Magic President, save us!

Wed, 01/20/2016 - 17:29 | 7073892 Bazza McKenzie
Bazza McKenzie's picture

I hear he has put up a "Mission Accomplished" banner.

Wed, 01/20/2016 - 14:37 | 7072913 Dr. Engali
Dr. Engali's picture

No worries, if it becomes too big an issue the fed will print up some funny money and buy it at a premium from the banks. 

Wed, 01/20/2016 - 14:37 | 7072914 nidaar
nidaar's picture

"Can't Give Their Assets Away"

Ehm, why would they..banks having them as collateral don't need to mark to market so everything's fiiine.

Wed, 01/20/2016 - 14:37 | 7072916 Fuku Ben
Fuku Ben's picture

This doesn't bode well for the Dallas Fed if they did order banks to demand asset sales and they did it to maximize value.

Tyler, we're looking forward to rep-lies from your Fed FOIA request. I hope you didn't send it electronically. I've heard rumors they've been having technical issues lately.

Wed, 01/20/2016 - 14:39 | 7072923 Conax
Conax's picture

Time to pick up a D-9, plate that sucker in, install an O2 tank and CTV cameras and go downtown?

Hory shit, it's "Dozerman, the Sequel".

Wed, 01/20/2016 - 16:07 | 7073398 still kicking
still kicking's picture

Why not splurge for the D-10

Wed, 01/20/2016 - 14:46 | 7072953 economessed
economessed's picture

Fracking equipment?  Are we talking about the value of a used sex toy? 

Wed, 01/20/2016 - 14:50 | 7072972 bid the soldier...
bid the soldiers shoot's picture

If you can't give your assets away,  just kiss your assets good-bye

Wed, 01/20/2016 - 14:53 | 7072983 MsCitizen2
MsCitizen2's picture

What?  No one is congratulating the Saudis?  

And hey - where are all you "DRILL BABY DRILL" folks NOW? 


Wed, 01/20/2016 - 14:54 | 7072986 MATA HAIRY
MATA HAIRY's picture

They can't give it away on 7th avenue....they're in tatters....

Wed, 01/20/2016 - 17:03 | 7073702 J Jason Djfmam
J Jason Djfmam's picture

My brain's been battered...splattered all over...Manhattan.

Wed, 01/20/2016 - 22:44 | 7075365 HardlyZero
HardlyZero's picture

"Samson Resources Corp. filed for bankruptcy in September, listing $4.2 billion in debt."

Wow that's some...shattered number... all over.

Wed, 01/20/2016 - 14:59 | 7073020 Atomizer
Atomizer's picture

White elephant sale on toxic derivatives. 

Wed, 01/20/2016 - 15:14 | 7073109 Duc888
Duc888's picture




I'll bet there are some serious deals on heavy equipment out there in the dakotas..

Wed, 01/20/2016 - 15:24 | 7073171 KellySpinner
KellySpinner's picture

The Williston Experience: A Story of Boomtown Greed.



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