Struggling oil and gas company files for Chapter 11 bankruptcy

Consolidation in the oil and natural gas sector has led to financial distress in the oil and gas services industry.

May 21, 2024 - 06:30

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Struggling oil and gas company files for Chapter 11 bankruptcy

The use of hydraulic fracturing in oil and gas development projects is a controversial issue, with several states banning the process, such a California, Delaware, Florida, Maryland, New Jersey, New York, Pennsylvania, Oregon, Vermont and Washington.

On the other hand, the huge oil state of Texas back in 2015 became the first state to ban fracking bans.

The hydraulic fracturing process involves the injection of liquids and materials at high pressure to create small fractures within tight shale formations to stimulate production and extract oil and gas from an underground well after the drilling has ended and the rig and derrick are removed from the site, Independent Petroleum Association of America describes on its website.

Environmental groups, such as the Sierra Club and Americans Against Fracking, have opposed fracking for several reasons, including a risk that the process can contaminate drinking water, devastate thousands of neighborhoods and thousands of square miles of landscapes that are important to people and wildlife, negatively impact air and water quality, frequently require unacceptable drawdowns on surface water and groundwater, and that fracking and its associated waste disposal can cause seismic events.

Some of the top oil and gas industry-backed organizations supporting hydraulic fracking process include the Independent Petroleum Association of America and Western Energy Alliance.

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On its website, the Independent Petroleum Association of America described fracking as "a uniquely American success story that has provided immense benefits around the nation." It even claims fracking has "brought cleaner air by significantly reducing U.S. greenhouse gas emissions to 25-year-lows."

Sierra Club on its website contradicts IPAA's greenhouse gas statement, asserting, "There is clear evidence that natural gas and oil extracted by fracking are major greenhouse gas contributors. Methane released via extraction and transport is 86 times more potent as a greenhouse gas than CO2 over a 20-year time frame."

Controversies aside, the hydraulic fracturing industry has faced some significant challenges from the consolidation of U.S. crude oil and natural gas exploration and production companies in 2023, as mergers and acquisitions amounted to about $234 billion, the most amount since 2012, according to the U.S. Energy information Administration.

Working oil pumpjacks on the outskirts of Maricopa in Kern County, Calif., on Sept. 21, 2023, where agriculture and oil are key to the region's economy. (Photo by Frederic J. Brown/AFP via Getty Images)
FREDERIC J. BROWN/Getty Images

Nitro Fluids files Chapter 11 bankruptcy reorganization

Oil and gas services company Nitro Fluids, which provides fracking services to oil and gas companies, on May 15 filed for Chapter 11 bankruptcy reorganization in the U.S. Bankruptcy Court for the Southern District of Texas in Victoria, facing severe financial distress from a huge revenue decline that it blamed on industry consolidation. The debtor said in court papers that it filed to implement a marketing process for one or more transactions.

The debtor listed $50 million to $100 million in assets and liabilities in its petition. It had about $234,000 cash on hand on the petition date and owed $38.2 million in funded secured debt obligations and $14.4 million in unsecured debt, according to court papers.

The Nordheim, Texas, debtor asserted that its ability to generate positive cash flow to service its debt and trade obligations had been severely affected by an economic slowdown in the oilfield fracking services and related infrastructure markets since 2020, the debtor's restructuring adviser Brad Walker of Riverbend Special Situations Group said in a May 17 declaration.

The debtor's monthly revenue recently had declined from an average of about about $1.2 million in 2023 to less than $100,000 in March 2024, according to court papers. The decline in revenue was attributed to merger consolidation among Nitro's customer base. For example, Nitro customer Earthstone was acquired by Permian Resources (PR) in November 2023, resulting in a 50% decline in Nitro's revenue in a short period, court papers said.

The debtor had also defaulted on $36.95 million owed to prepetition secured lender Simmons Bank NA. The debtor will seek up to $6 million in debtor-in-possession financing from Simmons to finance obligations during the Chapter 11 case.

Nitro, founded in 2010, also ran into some legal controversy that could cost it millions of dollars. The debtor on March 27 was on the short end of an $8.9 million jury award to Cameron International Corp. as a result of a patent infringement lawsuit filed in 2018. However, no final judgment has been entered. The debtor believes that a final judgment could range from $3 million to $27 million, according to court papers. A Chapter 11 filing, however, implements an automatic stay on all legal actions against the debtor.