From boom to gloom, landowners feel the pinch as shale cash stops flowing
At the height of the US energy boom, Texas landowner John Baen received about $100,000 a month in royalty payments from companies producing oil and natural gas on his property.
Now the cheques are much smaller, and when he opens his mailbox each day, he's afraid he'll find yet another bankruptcy notice.
So far, four of the producers sending him cheques have caved in to rising debts as oil prices slumped, seeking court protection from their creditors.
"I feel like crying because I know I'm going to get another 10 notices," said Baen (67), who owns 10,000 acres of land and mineral rights on other property.
A rebound in oil prices that bottomed near $44 a barrel in March has provided some relief to stronger companies that have been able to compensate with cost cuts and more efficient operations.
For many smaller, cash-strapped producers, current prices of almost $60 still aren't enough to make ends meet compared to the $100-plus prices seen during the boom days. West Texas Intermediate crude, the US benchmark grade, gained 74 cents to $59.72 a barrel in electronic trading on the New York Mercantile Exchange last week.
There have been at least a dozen bankruptcy filings in recent months, and more than a dozen have defaulted on bond payments or warned investors of challenging times ahead, according to data compiled by Bloomberg.
That's sending shock waves through the world of private land and mineral rights owners - sometimes called "shale- ionaires" - who were enriched by the explosion in US shale drilling. Those resource owners basically rent out their oil and gas rights to producers in return for a share of the revenues. When the industry does well, the mineral rights owners do well. When business tanks, they share the pain with producers.
Royalty payouts from bankrupt operations have shrunk to a fraction of the rates paid before the crash, sometimes more than can be explained by the drop in oil price.
In the worst cases, landowners can be left with no one to take responsibility for abandoned waste, spills and other hazards, say industry experts who have past experience with oil busts. "If you're a landowner and you're not happy with an operator, you don't want them to go bankrupt," said Jenna Keller, a Colorado oil and gas attorney, by telephone. "Because then you're stuck with a mess."
Many more companies, which make monthly royalty payments to tens of thousands of people, may go bankrupt in the next year, said John Castellano, a managing director at AlixPartners LLC, who focuses on company restructuring.
"We're seeing highly-levered companies, with high break- even cost requirements, with little ability to generate cash and little access to liquidity," Mr Castellano said. "I don't believe we are near the end of this." (Bloomberg)