Oil

The recent bump in oil prices has given some market watchers hope that energy companies would be able to earn their way out of their current distress.  But even at oil prices of $40 a barrel (a considerable uptick from recent lows in the mid-$20s), energy companies continue to face daunting financial challenges, with senior lenders likely to find themselves impaired in the eventual restructurings that will result.

Those looking beyond the immediate pain have reason for optimism.  The opportunities for strong returns could be substantial for patient and savvy distressed investment professionals, but the downside risk is likely to keep many risk averse capital providers away.  In the meantime, with advisory firm Deloitte estimating that 175 oil and gas companies could default on loan covenants in 2016, the near-term outlook is one of continued retrenchment for a sector that until recently had been solely focused on growth.

About the Author:

David Johnson is a career change agent who has served as interim manager or financial advisor on over $5 Billion of distressed middle market transactions.  He can be contacted at: david@abraxasgp.com or 312-505-7238.