Access to the capital markets, broad based M&A or a sharp rebound in oil prices should not be expected to rescue oil and gas companies facing severe financial stress in 2016. It is expected that volatility and uncertainty will continue to dominate the market, and large international producers are not likely to comply with production limiting agreements.

Given the market conditions, borrowers and lenders will need to rely on internal solutions to reshape operations and manage liquidity and capital structures. Lenders will need to be prepared for “tougher” workouts that include debt-to-equity conversions and potential requests for additional cash infusions or protective advances.

With equity cushions evaporating, lenders will require a more sophisticated level of evaluation and analysis, and will need to develop a sharper evaluation of the information presented by borrowers.  Understanding the full-cycle economics, break-even oil price thresholds, and cash flow profiles of drilling programs is critical to determining the true value of the assets and the probability of being able to weather the current cycle.

Carl Marks Advisors’ Energy Practice Group, with a dedicated team on the ground in Houston, Texas, includes seasoned operators and investment bankers who developed an analytical process to pinpoint the critical value drivers and evaluate the options and decisions that borrowers, lenders and investors will face.

By employing smaller project teams led by a Carl Marks partner, we can preserve precious liquidity and not duplicate existing company staff. We provide boots on the ground support for distressed borrowers, and work closely with management to develop a bottoms up capital spending plan and financial projections that optimize value. Our typical scope of work for E&P companies includes the following value added services:

  • Valuations and Reserve Reports – using our Acquisition & Divestiture experience, we will scrub the engineering analysis and provide a realistic viewpoint of reserve reports. We will also fully evaluate the true net present value of drilling programs and ascertain the embedded break even oil price assumptions.
  • Viability and Marketability of Assets – we prepare data rooms and provide the necessary information to support due diligence processes to attract the best offers.
  • CRO and Interim Management – we work as part of the management team to fill interim positions and provide leadership through the restructuring process.
  • Liquidity Forecasts and Financial Projections – we work closely with the CFO and the finance team to improve liquidity, develop 13-week cash forecasts and detailed monthly financial projections.
  • Stakeholder Communications – we bring credibility to the process by providing reliable information and communication to stakeholders to enable constructive negotiations and a successful outcome.