What About the Children?

This was a big (bankruptcy) week for oil field servicers. 

After months of upstream idling and cost cutting, expert predictions of a cascade through the midstream space finally came true with a trio of prepackaged bankruptcy cases: Key Energy Services Inc.Basic Energy Services and American Gilsonite. With oil mired in the $50/barrel range, upstream producers cut capex, competitive servicers cut pricing, and suddenly - in the example of Key Energy - $1b in funded debt became entirely unsustainable. Shocker.   

And yet Key's bankruptcy papers paint a picture of...success?!? Sure, we'll give some credit: a consensual prepackaged case with a two-month timeline is a shining star in an industry rife with supposed prearranged deals that descend quicker into chaos than Donald Trump at a presidential debate (we're looking at you Samson Resources, Sabine, and Midstates Petroleum). But let's not lose perspective here... 

Platinum Equity will come out as the largest equity holder. Various creditors will swap their debt for equity. Chevron will continue to receive services. Shareholders? C'mon. Key was a publicly-traded company. No one cares. 

J. Marshall Dodsen, CFO of Key, noted that Key undertook dramatic measures to stave off bankruptcy including shutting down business lines, selling assets, and riffing employees like nobody's business. He laid off 55% of the workforce. Some quick math here: 2900 employees remain...55% gone...carry the one...yup, 1600 employees axed. What a hero. 

Notably, Basic Energy's papers highlight a 30% headcount reduction as compared to 2014 (read: before oil cratered). While American Gilsonite noted that firings were part of its pre-filing cost-cutting strategy, it spared us from the exactitude. Outside of the bankruptcy court, we learned this week - in the context of reporting a $429mm net loss - that Baker Hughes has eliminated nearly 25,000 jobs during this commodity-price downturn. 

Sadly, nobody is earnestly talking about the real world implications of this debt-laden SG&A-ridden cowboy culture collapsing before our very eyes. But they should be. Because clearly people are losing jobs. Lots of people. 

It doesn't stop there. We singled out Samson and Midstates for a reason. And that's because Oklahoma is a complete and utter hot mess right now. Aside from lining biglaw and advisory pockets, these cases (and, of course, the oil price decline generally) have had other very real consequences. We recommend that you watch the 10/21/16 episode of Vice News on HBO for more detail but, suffice it to say, the oil bust is hitting the children. Lost oil revenue has destroyed school budgets and this means fewer school days for Oklahoma kids. To make up for this, the state is proposing a sales tax increase that would propel Oklahoma to the top of the combined state/local tax rates. If there is no other explanation for this crazy election season, there is this: people do desperate things when children are involved.

The restructuring industry is abuzz about this week's uptick in filings after a relatively slow Q3. But there are bigger forces at play here. Let's hope those Oklahoma children are safe when the next big force of an earthquake strikes.