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Alvarez & Marsal dominates bankruptcy financial services for oil and gas sector

Alvarez & Marsal Holdings LLC's North American subsidiary has emerged as the financial adviser and services provider of choice for oil and gas companies filing for bankruptcy worldwide, an analysis of S&P Global Market Intelligence data shows.

Of the firms that disclosed this detail of their bankruptcy proceedings, four have retained Alvarez & Marsal North America LLC since Saudi Arabia and Russia ignited an oil price war in early March that kicked off an economic downturn and an anticipated wave of North American shale bankruptcies. The companies that turned to Alvarez & Marsal included Diamond Offshore Drilling Inc. and Whiting Petroleum Corp.

Moelis & Co., Lazard Freres and Co. LLC and Guggenheim Securities LLC were the next most popular choice after Alvarez & Marsal. Each has been hired by two companies.

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In the U.S. and Canada, where low oil prices and demand weakness from the COVID-19 pandemic are hitting drillers particularly hard, international law firm Haynes and Boone LLP reported the number of oil and gas producers filing for bankruptcy increased to 14 in the second quarter of 2020, up from five during the first quarter. The 19 bankruptcies announced so far this year involved a combined debt of approximately $13.1 billion.

"I don't know if the third quarter will be the crest," said Buddy Clark, a partner in the law firm's energy transactions group. "There are plenty of companies that can still be impacted. We will probably see an increase in filings through the end of the year."

Moelis & Co. founding partner and co-President Navid Mahmoodzadegan agreed that relief for the oil and gas industry is not on the immediate horizon.

"There was already a set of circumstances around lower oil prices that has been festering for a number of years … but I think the breadth and speed by which this crisis kind of overtook the U.S. economy and a bunch of companies was unprecedented, for sure," he said June 9 during Morgan Stanley's Virtual U.S. Financials Conference.

According to a June 22 report from Deloitte, roughly 20% of U.S. shale drillers that remain technically solvent "have stressed financials at an average oil price of $35 per barrel, and at $20 per barrel that ... rises to 25%."

In the U.S., shale driller Chesapeake Energy Corp. is expected to file for Chapter 11 after it elected on June 15 to skip interest payments on its 5.375% senior notes due 2021 and 8.0% senior notes due 2027, prompting S&P Global Ratings to downgrade the company's issuer credit rating to D, or default, from CC.

Dublin-based oilfield services provider Weatherford International PLC, meanwhile, will likely seek similar protections for the second time in under two years. London's Valaris PLC and Noble Corp. PLC are not too far behind.

During its previous bankruptcy cycle in 2019, Weatherford retained Alvarez & Marsal Holdings as restructuring adviser and Lazard Freres as financial adviser.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.