Reed Smith Client Alerts

The global economic downturn caused by COVID-19 has cratered energy markets. In response, upstream and midstream companies must prepare now for counterparties that seek bankruptcy protection while at the same time taking creative steps to maintain their own liquidity. Applicable “creditors” should confirm whether they have taken all the necessary actions to obtain and perfect their liens, be it consensual liens, mineral liens or judgment liens.

Authors: Jorge I. Gutierrez Gary C. Johnson Keith M. Aurzada Lloyd A. Lim

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It seems like a lifetime ago that the two greatest concerns of the oil and gas industry were the slowdown in the global economy and investor demand for “free cash flow”. WTI was stuck in the mid $50s per barrel and natural gas hovered at $2.00/MMBtu (and lower) for an extended period of time. The past few weeks’ events serve as a reminder that we should be grateful for what we have because things could always get worse.

The massive economic shocks from the COVID-19 pandemic and the Saudi Arabia/Russia volume and price standoff (aka the war against American shale producers) have created an unhinged market downturn, and it is unclear when a sense of normalcy will return. The magnitude of the downturn means many U.S. producers, their midstream company counterparts, and related oil field service companies will not survive. Regardless of balance sheet strength, the upstream and midstream players must prepare now for counterparties that seek bankruptcy protection while at the same time getting creative to maintain their own liquidity.