August 10, 2020

Volume X, Number 223

August 10, 2020

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Prepare for Bankruptcies Sparked by Oil Price Battle

  • Companies facing bankruptcy can still make smart moves
  • Creditors should consider asserting liens before it’s too late
  • Legal fees may be covered for some unsecured creditors 

Oil prices took an historic nosedive Monday as Saudi Arabia and Russia announced plans that would flood a market already crippled by the coronavirus. How long this price war will continue is unclear but Brent and US crude have already lost half their value this year. Notably, the US energy sector saw a record number of bankruptcies filed last year and many expected that trend to continue into 2020. That grim projection seems all the more likely today, making the need for well-thought-out legal strategies critical for companies in the sector on either side of the debt. 

There may be hope for some companies already teetering on the precipice. The Federal Reserve took steps Monday to keep short-term funding markets operating. Still, without much larger shifts many companies trying to fend off bankruptcy will not succeed. That said, there are several smart plays you can make now that will enable you to weather a time period of distress. Those include analyzing current contracts and business terms to determine what should be renewed and what should be allowed to lapse; hiring a turnaround consultant to provide professionals that have experience managing distressed companies; and beginning a dialogue or negotiations with existing creditors for a potential out of court workout plan, if necessary.

On the flipside, unsecured creditors should also be taking action now to best position themselves should their customers and/or partners file for bankruptcy. 

For example, now is the perfect time to review open contracts and unpaid amounts to assess whether you should use a lien claim to recover unpaid balances. Our team can help you make that decision by evaluating whether you should assert a lien claim to secure your debt under the applicable lien statutes.  We can also help companies burdened by debt determine how best to shield collateral and property from lien claims. 

It’s also important to note that once a company has filed for bankruptcy the court will establish an unsecured creditors committee. One advantage to a creditor that is chosen to sit on a creditors committee is that the legal fees of the creditors committee are paid by the bankruptcy estate, rather than by the individual creditors that are members. Womble Bond Dickinson has represented several unsecured creditor committees in the energy sector including Greenfield Energy Services, Inc. and Global Energy. 

There are few wiser mantras in business than “Hope for the best, plan for the worst.” A thundering rebound of the market in the next week or so would certainly change the bankruptcy outlook, but by how much? We intend to keep a watchful eye on the matter and to ensure our energy sector clients are prepared.  

Copyright © 2020 Womble Bond Dickinson (US) LLP All Rights Reserved.National Law Review, Volume X, Number 72


About this Author

Elizabeth Klingensmith litigation attorney WBD

Liz strategically partners with clients throughout the dispute resolution process as a counselor, trusted advisor and advocate from pre-litigation risk assessment all the way through trial. Business-minded and practical, Liz finds cost-effective solutions to achieve clients’ business objectives. Clients trust Liz’s judgment and legal skills, and know they will receive outstanding client service and consistent results. Liz helps clients achieve peace of mind during the litigation process, so they can stay focused on growing their businesses.  

With more than a decade of litigation...

Tony Guerino II Litigation Attorney WBD

Tony Guerino brings more than 20 years of experience in energy and environmental litigation involving oil exploration and production disputes.  He has served as lead counsel in energy-related matters throughout the United States and major producing areas around the globe. Prior to becoming an attorney, he worked as a petroleum and natural gas engineer, giving him a background in many of the technical aspects of his clients’ industry.  He brings strategic guidance and practical experience to his clients.  In addition to serving as lead counsel in energy exploration and production litigation, Guerino also represents energy industry clients in contract disputes and business torts.  In 2011, he was named a Fellow of the Texas Bar Foundation, one of the state’s top legal industry honors. 

Tony has represented major E&P companies, oilfield service companies, drilling contractors, independent operators, working interest owners and pipeline transportation companies.  His client work includes resolution of disputes involving complex energy industry matters related to Upstream Oil and Gas Operations, including Joint Operating Agreements, Purchase and Sale Agreements, Royalty Agreements, Pipeline Ruptures, FPSO construction, Subsurface Well Failures, Field Development Agreements, Fracking, Underground Trespass and Contamination, Crude Oil and Natural Gas Gathering, Transportation and Storage. 

He also helps his clients evaluate and monitor risk and liability concerns at the contract drafting and negotiation stage of domestic and international projects.

Matthew Ward Bankruptcy Attorney Womble Bond

Matthew Ward is the leader of the Bankruptcy, Restructuring, and Creditors’ Rights practice group of Womble Bond Dickinson (US) LLP, and is the Office Managing Partner for the firm's Wilmington, Delaware office, and a member of the Firm Management Committee.

He has extensive experience serving as primary counsel for numerous public and private companies, guiding them through all aspects of complex Chapter 11 and Chapter 7 proceedings, assignments for the benefit of creditors, or reorganizations out of court. Matthew has also regularly...

Morgan Patterson Bankruptcy Lawyer Womble Bond

Morgan’s practice focuses on corporate bankruptcy and creditor’s rights in complex chapter 11 proceedings. Morgan primarily practices in the bankruptcy court in Wilmington, Delaware. She has broad experience representing debtors, creditors’ committees, lenders, bondholders, secured and unsecured creditors, liquidation trustees, landlords, asset-purchasers, and other interested entities in various bankruptcy reorganization and liquidation proceedings.

Her bankruptcy work includes all matters of litigation and transactions, including involuntary petitions, avoidance actions, relief-...