Oil producers faced financial challenges due to reduced demand and lower oil prices during the Covid-19 pandemic. That downturn lasted for about two years until rising oil prices in 2022 benefited oil companies but also helped fuel inflation.
Currently, West Texas Intermediate crude was at about $69.79 a barrel and Brent crude was at about $73.55 on Sept. 25. A U.S. Energy Information Administration forecast on Sept. 10 predicts Brent will rise to $82 in the fourth quarter and average $84 in 2025.
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Rising prices, however, are not the reason why several oil-related companies filed for bankruptcy in 2024. Prices could have been a problem, though, if they had been falling. Other situations, some unique, have caused companies to file for Chapter 11 bankruptcy.
Oil and gas services company Nitro Fluids, which provides hydraulic fracturing services to oil and gas companies, filed for Chapter 11 bankruptcy reorganization on May 15 in the U.S. Bankruptcy Court for the Southern District of Texas in Victoria, facing a massive revenue drop that it blamed on industry consolidation.
Struggling oil products company Stanley Oil & Lubricants faced legal problems that forced it on Sept. 17 to file for Chapter 11 protection in the U.S. Bankruptcy Court for the Eastern District of New York.
The company asked the bankruptcy court for an automatic stay of legal proceedings after a U.S. District Court judge granted one of the debtor's suppliers a preliminary injunction against it in a trademark and copyright infringement lawsuit, freezing certain assets and halting certain business activities.
Finally, the conventional oil refining and recycling company Vertex Energy (VTNR) and 23 affiliates filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas in Houston on Sept. 24, seeking approval of a plan to recapitalize the company's balance sheet or sell its assets through a restructuring support agreement.
The company listed assets and liabilities ranging from $500 million to $1 billion in its petition.
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Vertex will seek approval of $80 million in new term loans to finance debtor-in-possession debt for working capital, general corporate needs and to fund its Chapter 11 case. It will also seek to raise $200 million in pre-petition loans.
The Houston-based oil refiner, founded in 2001, produces and distributes petroleum products, re-refines used motor oil into various petroleum products, and refines renewable diesel and other fuel products at its Mobile, Alabama, refinery.
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The debtor ran into financial trouble after launching a project to build a hydrogen plant at its Mobile plant, resulting in construction delays and cost overruns that slowed its bid to become a leader in renewable diesel production, according to a statement from its chief restructuring officer, R. Seth Bullock. The company produced renewable diesel at the Mobile plant.
The company only produced half of its projected goal of 14,000 barrels per day of renewable diesel due to problems at the facility. Rival refineries began ramping up production, creating a supply glut that hurt the renewable diesel industry and squeezed profit margins.
Vertex also failed to comply with its obligations under the Federal Renewable Fuels Standards Program to blend a minimum amount of biofuels for on-road transportation, resulting in approximately $72.3 million in liabilities imposed on the debtor by the U.S. Environmental Protection Agency.
The debtor faced financial difficulties due to declining profitability as a result of a drop in “crack spreads,” which is the difference between the price of gasoline and the cost of crude oil. It also suffered from reduced sales due to a surplus of renewable energy supply on the market.
As the company's liquidity deteriorated, it also faced the imminent maturity of a significant debt load. In late 2023, the company marketed itself for the sale of certain assets, but no transaction materialized until spring 2024.
Vertex began investigating its out-of-court and in-court restructuring options and in mid-August determined that the best option was to file for Chapter 11 restructuring. The company negotiated the terms of debtor-in-possession financing, a restructuring support agreement, and a Chapter 11 plan with its consenting term loan lenders and DIP lenders.
The company launched another marketing process on September 3 seeking bidders for its assets and will seek an auction if it receives one or more offers. The debtor has set October 24 as the deadline for receiving an expression of interest from potential bidders.
The debtor has set a deadline for submitting bids of Nov. 22 if at least one qualified bid is received and a Nov. 25 auction if more than one bid is received. The deadline for filing objections is Dec. 9 and a hearing to approve the sale is set for Dec. 16.
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