Houston-based Diamond Offshore Drilling Inc. (NYSE: DO) and 14 affiliates filed for Chapter 11 bankruptcy protection in Houston on April 26.

In court documents, the company listed total assets of more than $5.8 billion, total debts of more than $2.6 billion and between 5,000 and 10,000 creditors.

Diamond noted in the court documents that it was already dealing with a general industry downturn, which was “worsened precipitously in recent months due to two unprecedented global developments, an oil ‘price war’ between OPEC and Russia and the Covid-19 pandemic.” In response, the company “took various actions in an attempt to preserve existing contract backlog, liquidity and financial flexibility,” including borrowing $400 million under its revolving credit facility, before turning to the bankruptcy courts.

Earlier this month, Diamond skipped a semiannual interest payment on its 5.7% senior notes due 2039, according to a filing with the U.S. Securities and Exchange Commission. The payment was due April 15, and the company had a 30-day grace period to make the payment before triggering a default.

On April 16, S&P Global Ratings and Moody’s downgraded Diamond.

“Diamond’s decision to not make an interest payment shows that the coronavirus-induced crash in oil prices and corresponding capital spending cuts by oil and gas producers has indefinitely deferred any potential recovery in offshore drilling activity and dayrates,” Pete Speer, Moody’s senior vice president, said in a press release. “Despite having adequate liquidity and no maturities before October 2023, this looks like the first step for the company to begin discussions with creditors.”

In the SEC filing, Diamond said it Lazard Frères & Co. LLC as financial adviser and Paul, Weiss, Rifkind, Wharton & Garrison LLP as legal adviser to assist the board and management team in evaluating various alternatives related to the company’s management structure.

Additionally, Diamond laid off 103 people permanently starting on April 15, cutting staff from its corporate office at 15415 Katy Freeway in Houston, according to a Worker Adjustment and Retraining Notification Act letter filed with the Texas Workforce Commission that same day. The company said it wasn’t able to give more advance warning of the layoffs because of how rapidly the situation developed.

The layoffs are expected to be complete by April 28.

Job cuts associated with the latest price crisis are likely to come in two waves. The first wave is associated with the cessation of some portion of the industry’s operations and typically involve layoffs among field personnel. The second phase will come later, when companies go bankrupt and much-anticipated consolidation sweeps across the sector. Layoffs in that wave will hit hardest among corporate support staff, engineers and other technical employees — the kinds of people who work in Houston, in other words.

Several other Houston energy companies, including NexTier Oilfield Solutions Inc. (NYSE: NEX), Halliburton Co. (NYSE: HAL) and Baker Hughes Co. (NYSE: BKR), have also conducted layoffs in recent weeks as oil prices plunge lower and the market gets ever tougher.

By Olivia Pulsinelli and Joshua Mann

Courtesy of Houston Business Journal

https://www.bizjournals.com/houston/news/2020/04/26/houston-offshore-driller-files-for-bankruptcy.html

HOUSTON — Oil-producing nations on Sunday agreed to the largest production cut ever negotiated, in an unprecedented coordinated effort by Russia, Saudi Arabia and the United States to stabilize oil prices and, indirectly, global financial markets.

Saudi Arabia and Russia typically take the lead in setting global production goals. But President Donald Trump, facing a reelection campaign, a plunging economy and American oil companies struggling with collapsing prices, took the unusual step of getting involved after the two countries entered a price war a month ago. Trump had made an agreement a key priority.

It was unclear, however, whether the cuts would be enough to bolster prices. Before the coronavirus crisis, 100 million barrels of oil each day fueled global commerce, but demand is down about 35%. While significant, the cuts agreed to on Sunday still fall far short of what is needed to bring oil production in line with demand.

The plan by OPEC, Russia and other allied producers in a group known as OPEC Plus will slash 9.7 million barrels a day in May and June, or close to 10% of the world’s output.

While the planned cut is slightly smaller than a tentative pact reached last Thursday, the deal should bring some relief to struggling economies in the Middle East and Africa and global oil companies, including American firms that directly and indirectly employ 10 million workers. Analysts expect oil prices, which soared above $100 a barrel only six years ago, to remain below $40 for the foreseeable future. The American oil benchmark price was just over $23 a barrel on Sunday night.

The agreement reached on Sunday was the result of more than a week of telephone conversations involving Trump; the Saudi crown prince, Mohammed bin Salman; and President Vladimir Putin of Russia. Trump praised the deal, saying on Twitter that it “will save hundreds of thousands of energy jobs in the United States.”

Negotiations hit a snag when Mexico refused to go along with an agreement fashioned by Russia and Saudi Arabia, saying it would cut just 100,000 barrels a day and not 400,000. Saudi Arabia strongly resisted Mexico’s position, worrying that if Mexico could balk others would follow.

Trump supported President Andrés Manuel López Obrador, giving vague promises he would make up the difference, and helped coax the Saudis and Russians not to abandon the tentative agreement.

It was not immediately clear if the Trump administration made a formal commitment to cut production in the United States, but with prices plummeting, many companies in the country have already reduced output. There is no international mechanism to strictly enforce such production agreements and cheating is common.

Big oil nations that are not members of OPEC Plus, like Canada, Brazil and Norway, along with the United States, have been cutting production. The Energy Department has said that American oil production will fall by at least two million barrels a day by the end of the year. Other analysts say the eventual cut could be 3 million barrels a day out of the 13.3 million barrels a day produced at the beginning of the year. Trump has expressed interest in buying oil to fill the Strategic Petroleum Reserve to further reduce supplies.

The oil crisis began a month ago when Russia refused to go along with cuts promoted by Saudi Arabia and other OPEC producers. In response, Saudi Arabia said it would increase production by 3 million barrels a day and flood the market. Oil prices and global stock markets fell sharply on the news.

The Russian and Saudi reversal in the last few days was an acknowledgment that their gamble was causing self-inflicted economic wounds.

“There were miscalculations on both sides,” said Ben Cahill, a senior energy fellow at the Center for Strategic and International Studies. “The Russians miscalculated how sharp the Saudi response would be and they might have been taken aback by how deep the price drop was.”

The change in course should give a lifeline to American companies as they invest far less in exploration and production.

“Hopefully, the American oil industry has avoided a worst-case scenario,” said Amy Myers Jaffe, an energy and Middle East expert at the Council on Foreign Relations. “There still will be bankruptcies, but for the time being, the fears that there would be a wholesale destruction of the industry can now be put aside, because the worst of the price war has passed.”

It is possible oil prices will sink again in the coming days if traders are not satisfied with the new cuts. In fact, on Thursday, the last day that oil futures traded, the price fell sharply even though a deal was close.

“The agreement provides the expectation of stability,” Rene Ortiz, Ecuador’s energy minister and a former secretary general of OPEC, said in an interview on Sunday. “But whether the markets react accordingly is a different ballgame.”

With the pandemic crushing economies around the world, few buyers were available in recent weeks to buy the cheap Saudi crude. The kingdom stored some oil in Egypt and was forced to let unsold crude sit in tankers along its coasts.

The mounting glut became a threat to Saudi government finances. At a projected average price of $34 a barrel this year, Rystad Energy estimated the kingdom’s revenues would drop by 50% compared with 2019, a loss of $105 billion.

Saudi Arabia still has foreign reserves of $500 billion, but that has shrunk from $740 billion in 2013. Several years of depressed oil prices had already forced the kingdom to borrow money and reduce energy subsidies for citizens. Crown Prince Mohammed is now counting on his reserves to help diversify the Saudi economy for the future.

Russia is in far better shape financially than Saudi Arabia, especially with a flexible exchange rate — as the ruble depreciates, the value of its exports rises. While it would also lose billions of dollars in revenues with the drop in oil prices, the government has a much lower fiscal deficit than Saudi Arabia and has $550 billion in foreign reserves.

But Russia has other liabilities. It has limited processing capacity and its refineries have insufficient storage facilities. European demand has collapsed, and while China is still buying oil, at bargain prices, its storage will be filled up in another month or so, leaving Russian crude stranded.

With thousands of Soviet-era oil and gas wells in western Siberia, Russia would have faced the prospect of shutting down and later turning back on wells that are costly to manage, and in the process might permanently limit the amount of oil recoverable in the future.

Uncertainties abound for the industry as the pandemic disrupts global economies.

Members of OPEC and their allies entered talks last week hoping that the United States, Canada and other Western producers would agree to explicit cuts, adding up to four million or five million barrels a day. Instead, American officials just made assurances that crude output would be reduced over time, on top of voluntary reductions that have already begun at some U.S. companies. The agreement announced on Sunday will taper into a 7.7-million-barrel-a-day cut from July to December and then to 5.8 million barrels a day from January 2021 to April 2022.

American oil companies are already eliminating thousands of jobs, plugging old wells and decommissioning rigs and fracking equipment in preparation for the worst downturn in more than a generation. While American consumers are saving at the gas pump, oil-producing states like Texas, Oklahoma and North Dakota are expecting deep losses in jobs and tax revenue.

Industry executives predict a wave of consolidation, in which small, indebted companies are either bought by larger ones or merge.

“There will be some companies that won’t survive,” said Trent Latshaw, president of Latshaw Drilling, an oil service company active in Texas and Oklahoma. “But the industry in general will survive and come out of this stronger. We will have to make hard decisions, innovate and we’ll become smarter because of this.”

The American industry was last shaken up in 2014, when Saudi Arabia and its OPEC allies flooded the market with oil in an effort to undercut American shale producers who were grabbing market share from them. Prices crashed and hundreds of American companies went out of business, and 170,000 jobs were lost. While American production briefly dropped, it quickly recovered and grew.

The coronavirus is a new and bigger challenge, and it was magnified last month when Russia and Saudi Arabia began their feud. Russian oil executives said they were tired of losing market share to American producers. Saudi Arabia retaliated by promising to pour more oil on the market, taking prices to roughly $20 a barrel for a time, less than half the level at the beginning of the year.

But a complete free fall of oil prices into the single digits — something not seen in two decades — appears to have been avoided. Trump’s recent public lobbying of Russia and Saudi Arabia to lower production helped raise prices several dollars a barrel, allowing many American companies to limit their losses.

Energy experts acknowledged Trump’s role in the deal.

“President Trump, who spent the last three years criticizing OPEC, became the de facto president of the producer group,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.

The global COVID-19 pandemic has forced many companies in Houston to adapt their operations to keep their employees and customers safe.

And while an order from Harris County Judge Lina Hidalgo tells members of the public to stay in their homes, the energy industry is among those sectors exempt from the order. While in many cases Houston’s energy employees are able to perform their jobs remotely from the safety of their living rooms, sometimes the work has to be done in person. Here’s how two of Houston’s largest power companies are tackling the problem, both in the office and in the field.

NRG

Houston- and New Jersey-based based NRG Energy Inc. (NYSE: NRG) first started monitoring COVID-19 in January, and it ramped up preparations for things to get tougher in February, expanding the company’s ability to have its employees work remotely, said Elizabeth Killinger, president of NRG’s retail arm, Reliant Energy.

Killinger started encouraging her team to work from home during the week that ended March 13, she said. Then the company made the call to close its facilities around the country on March 17, allowing only critical staff to work in person, Killinger said.

NRG still has employees ensuring that its power plants continue to operate, Killinger said.

The company has also ramped up its cleaning efforts at its sites, and some of the critical staff who can’t work remotely are working in shifts to reduce contact that could spread infection, Killinger said.

“We have groups of employees that don’t cross paths — so they don’t cross pollenate — to minimize the number of people working together at any given time,” Killinger said.

The company is still expanding its telework capabilities, which will allow more employees to work remotely, Killinger said. However, the company is near its teleworking goal right now, she said.

“We are largely there,” Killinger said. “There really isn’t much more of an increased state of teleworking we would do.”

Right now, the company is looking to keep its facilities closed until April 3.

“Only if you are working in a critical, pre-approved role will you be coming into the office,” Killinger said.

CenterPoint

Houston-based CenterPoint Energy Inc. (NYSE: CNP) employees who are able to work from home are doing so, which means a lot of the office staff is now working remotely.

The company has also taken steps to protect its field technicians — it has arranged for them to start their days from home rather than in a central location, and the company is making sure they are supplied with proper protective equipment, said Jim Francis, CenterPoint’s vice president of safety and training. Francis is CenterPoint’s incident commander for its COVID-19 response.

CenterPoint has also started gathering info from its customers ahead of dispatching workers to their homes, Francis said.

“There’s a couple of questions that we ask customers just to make sure we understand their health situation,” Francis said. “Is anyone feeling ill? Have they traveled to areas that maybe have been more compromised with the coronavirus? Just to make sure our folks are as informed as possible so we can assess the risk of that particular service call.”

CenterPoint’s senior vice president of natural gas operations, Steve Greenly, said customers have been largely understanding of the questions.

“Not only are we concerned for the customer, but also our employees,” Greenly said. “We want to do everything we can to continue to be good stewards.”