Two Oklahoma energy companies announced key business decisions this – one took on more debt, and the other cut spending by $1 billion.
It’s been a rocky few months for SandRidge Energy – the company’s stock has been delisted from the New York Stock Exchange, and has been in a dispute with the Oklahoma Corporation Commission over compliance with wastewater directives in earthquake-prone areas. On Monday, the Oklahoma City-based company announced it would borrow $488 million to pay for general corporate operations.
“They're billions of dollars in debt, and we've talked before about how being really focused on a narrow geographic area puts them in a tough position,” said The Journal Record’s managing editor Adam Brooks. “They've had layoffs lately, and they haven't been able to sell most of the buildings downtown they want to get rid of and lease back, although they did sell the Braniff building.”
Oklahoma State University finance professor Dave Carter told The Journal Record’s Sarah Terry-Cobo the company may be running out of cash:
One strategic alternative could be a pre-packaged bankruptcy deal, in which creditors agree to a debt restructuring, he said. A pre-packaged deal could be challenging, because hedge funds and mutual funds hold much of SandRidge debt in the form of bonds. The more creditors a company has, the more difficult it will be to execute an agreement, he said. But bankruptcy isn’t a foregone conclusion, he said. “Though SandRidge hired a company to look at alternatives, it doesn’t automatically mean they will do anything,” Carter said.
They also hired some new financial and legal advisers, so this all could be a sign that they're preparing for a bankruptcy filing,” Brooks said. “We're still not sure if the company's really sustainable without an oil price rebound sometime this year.”
Williams Reductions
Also on Monday, Williams Partners – an affiliate of Williams Companies – announced they’re dramatically reducing the growth they have planned for 2016.
The Tulsa-based company said it’s cutting $1 billion from an initial $3 billion spending plan. They plan to raise $1 billion from asset sales, and need another $1 billion for future projects.
“It’s not really clear where that money is going to come from. They said that they don't plan to issue new debt or new equity,” Brooks said. “They want to expand their pipelines and other infrastructure, compression stations, that sort of thing on the east coast that they use to deliver natural gas.”
The company also said its board of directors approved an 85-cent-per-unit distribution, Terry-Cobo writes:
The distribution is consistent with the previous quarter. Carter said most MLPs are struggling and are cutting distributions. Williams Cos., which trades on the NYSE under the symbol WMB, expects to complete a merger with Dallas-based Energy Transfer Equity LP. The two companies signed a merger agreement on Sept. 28, and the deal could be finished by the end of March, Droege said. Oklahoma City University economics professor Russell Evans said he expects Williams Partners will be able to find the cash to complete the merger with Energy Transfer Equity. “In general, big banks are trying to take a long-term view of the commodity price downturn and help energy companies survive the next few years,” Evans said.
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