It's been a rocky five days for Oklahoma's energy sector, with downsizing, buyouts, and even a possible de-listing from the New York Stock Exchange.
On Tuesday Chesapeake Energy announced its second round of mass layoffs in two years, letting go a total of 740 employees, including 562 at the Oklahoma City campus. That figure represents nearly 20 percent of the workforce at the intersection of NW 63rd Street and Western Ave. The company is a significant driver of Oklahoma City's economy.
"I think a lot of them knew that this was coming, and Chesapeake hires good people, so a lot of them will land on their feet. That's what happened last time," said The Journal Record's managing editor Adam Brooks, referring to 2013 when Chesapeake laid off 800 employees, including 640 in Oklahoma City. "As far as the company, an analyst we talked to named Neil Dingmann said Chesapeake CEO has been making the right moves to help the company survive."
That's included asset sales, and spinning off their oilfield services company, according to The Journal Record:
Exploration and production companies with excessive debt face the most bankruptcy risk, but Chesapeake isn’t facing that immediate threat, [analyst Neal] Dingmann said. The driller has about 2.5 times more debt than profit, but that’s about average compared to its peers, he said. Gheit agreed the company isn’t headed for bankruptcy, even though it is financially constrained. . . . “It seems like Doug continues to do the prudent moves; he has laid a bunch of rigs down, paid down debt and he’s doing all those things,” Dingmann said. “Maybe they held off as long as they did to see if macro market conditions would turn around.”
"Analyst Fadel Gheit said that companies really need oil prices to be around $65 a barrel to survive. And they haven't been anywhere near that high this year," Brooks said. "They've been in the $40s lately. And the latest forecasts say they won't get back to that $65 level until late next year."
Williams Companies Makes Dallas Deal
Moving up the turnpike, there was a major announcement a day earlier by a large energy operator in Tulsa. Williams Companies was bought out by Dallas-based Energy Transfer Equity. The $37 billion merger will create the 5th-largest energy company in the world, and puts hundreds of jobs in Tulsa at risk.
Williams is Tulsa's 18th-largest employer, according to the Tulsa Regional Chamber, and the threat of losing those jobs could lead to a significant risk to the city's economy. But Brooks said there could be an upside.
"For example, if the move forces executives to move away, that could leave a hole in community leadership," Brooks said. "But in Oklahoma City, when Anadarko bought Kerr-McGee several years ago, that provided a chance for new people to step up, including Devon and Chesapeake, and MidFirst Bank."
Tulsa Regional ChamberPresident and CEO Mike Neal told The Journal Record's Kirby Lee Davis his organization has already reached out to ETE executives:
“In all likelihood it will be months before a merger will be finalized,” said . “Everything we hear at this point is positive. Obviously it is too early to know.” With both boards behind the merger, ETE anticipates completion in the first quarter of 2016. It awaits approval of Williams shareholders. . . . “Long term, I think this will hopefully be a positive for both of these companies as well as the northeast region and the state,” Neal said.
SandRidge Stock Scare
SandRidge Energy, a company that evolved into its current iteration less than a decade ago due to the involvement of Chesapeake co-founder Tom Ward, found out in July they were in danger of being removed from the New York Stock exchange if their stock price didn't get above $1 for 30 consecutive days. The company's stock hasn't been at that mark since June 24, and ended Thursday's trading at $0.31 at the closing bell.
"If a company is delisted, they can still trade as a penny stock," Brooks said. "Shareholders would still retain their ownership rights, but generally it is not seen as a very good sign for a company to be delisted."
On Monday, SandRidge suspended its semiannual dividend payment for preferred stock, The Journal Record's Sarah Terry-Cobo reports:
Keeping the cash will help the company’s liquidity position and prevents shareholders’ stock from being diluted, according to a prepared statement by CEO and President James Bennett. The company has 3 million shares of 7 percent preferred convertible notes. The company has previously paid the dividend in stock, rather than in cash. But paying dividends in stock would only further dilute SandRidge’s shares, Bennett wrote.
"They are having a board meeting November 6, and one of the things they're considering is a reverse stock split - that could be from 10 to 25 - which could mean people who have 25 shares would find themselves with one share," Brooks said.
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