These Shale Companies Will File For Bankruptcy First: Goldman's "Best And Worst" Shale Matrix

Over a month ago we presented a ranking of "America's most levered energy companies." Since then they have all, without exception gotten clobbered, not only in their publicly traded stock but also their debt.

Today, long after the liquidation whirlwind has left junk bond owners dazed and confused, Goldman catches up, and lays out a matrix of shale companies sorted not only by leveraged (they see 2.5x as the cutoff; we used 4.0x) but also by shale asset quality. From there, it also lays out the various opportunities, if any, available to the management teams in the resultant 4 quadrants.

Readers will be most interested in the "restructuring/bankruptcy" option, most applicable for Group 4, because these are the names which,  all else equal, will file for bankruptcy first.

This is what Goldman's Jason Gilbert has to say:

We believe oil market weakness presents H&Y E&P management teams with difficult decisions. For certain stronger companies, the challenge may be one of deciding if and when to high grade the portfolio through M&A. For some weaker companies, the decisions may be more stressful, with many lower-quality names being forced to consider (1) selling themselves, (2) restructuring/filing for bankruptcy protection, and/or (3) bolstering liquidity through asset sales and/or second lien debt issuance.

 

We have created a 2x2 matrix, shown in Exhibit 1, where we classify E&Ps according to both asset quality and balance sheet strength. In Exhibit 2, we provide the backup data on each company that justifies its classification in the chart below.

The matrix in question:

Click on picture to enlarge

the explanation:

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