The E&P, midstream and oilfield services sectors are facing significant headwinds over the next 18 months. While oil inventories remain high and demand remains constrained due to COVID related shutdowns, the threat of OPEC reversing curtailments looms over the markets. U.S. production is expected to remain flat or decline during the next 12 months as companies are forced to live within their cash flows until supply and demand rebalance. Additionally, with limited capital markets interest in the industry, companies will feel the pressure to defensively consolidate.
Borrowers 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. 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.
At Carl Marks Advisors, we understand the challenges facing companies across the E&P, midstream and oilfield services sectors, as well as what these issues mean for their stakeholders. Our experts, led by a team on the ground in Houston, knows how to pinpoint critical value drivers, evaluate the options and help make decisions that borrowers, lenders, investors and other stakeholders face regarding capital expenditure plans and liquidity requirements.