Oil producers faced financial challenges from reduced demand and lower oil prices during the Covid-19 pandemic. That downturn lasted about two years until higher oil prices in 2022 benefited oil companies, but also helped drive 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 to rise to $82 in the fourth quarter and average $84 in 2025.
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But rising prices are not the reason several oil-related companies filed for bankruptcy in 2024. Prices might have been an issue if they had been falling, however. Other situations, some unique, have caused companies to file for Chapter 11 bankruptcy.
Oil and gas services company Nitro Fluids, which provides fracking services to oil and gas companies, on May 15 filed for Chapter 11 bankruptcy reorganization in the U.S. Bankruptcy Court for the Southern District of Texas in Victoria, facing a huge revenue decline that it blamed on industry consolidation.
Distressed petroleum products company Stanley Oil & Lubricants faced legal issues 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 sought the bankruptcy court's automatic stay on legal actions 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, conventional oil refining and recycling company Vertex Energy (VTNR) and 23 affiliates on Sept. 24 filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas in Houston seeking approval of a plan to either recapitalize the company's balance sheet or sell its assets through a restructuring support agreement.
The company listed $500 million to $1 billion in assets and liabilities in its petition.
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Vertex will seek approval of $80 million in new money debtor-in-possession financing term loans for working capital, general corporate needs, and to finance its Chapter 11 case. It will also seek to roll up $200 million in prepetition loans.
The Houston-based oil refiner, which was 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, Ala., refinery.
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The debtor faced financial problems after launching a project to build a hydrogen facility at its Mobile facility, which resulted in construction delays and cost overruns that slowed its attempt to become a leader in renewable diesel production, according to a declaration by its Chief Restructuring Officer R. Seth Bullock. The company produced renewable diesel at the Mobile plant.
The company only produced half its projected goal of 14,000 barrels per day of renewable diesel because of facility issues. Rival refiners began ramping up production and created a supply surplus that impacted the renewable diesel industry and reduced profit margins.
Vertex also fell behind on its obligations to the federal Renewable Fuel Standard Program to blend a minimum amount of on-road transportation biofuels, which resulted in about $72.3 million in obligations levied against the debtor by the U.S. Environmental Protection Agency.
The debtor faced financial distress from decreased profitability that resulted from a decline in "crack spreads," which is the difference between the price of gasoline and the cost of crude oil. It also suffered reduced sales because of a surplus of renewable energy supply in the market.
As the company's liquidity was deteriorating, it was also facing an impending maturity of a significant debt load. The company in late 2023 marketed itself for a sale of certain assets, but no transaction materialized by spring 2024.
Vertex began investigating its options for out-of-court and in-court restructurings, and by mid-August, it determined that filing for a Chapter 11 reorganization was its best option. The company negotiated terms for debtor-in-possession financing, a restructuring support agreement, and a Chapter 11 plan with its consenting term loan lenders and DIP lenders.
The company began another marketing process on Sept 3 seeking bidders for its assets and will pursue an auction if it receives one or more bids. The debtor has set an Oct. 24 deadline to receive an indication of interest from potential bidders.
The debtor has set a Nov. 22 bid deadline if at least one qualified bid is received and a Nov. 25 auction if more than one bid is received. The objection deadline is Dec. 9 with a hearing to approve a sale set for Dec. 16.
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