Piggybacking off the case study involving a UK-based company in crisis after an oil spill in Nigeria, panelists Ryan Eagle of Ferrier Hodgson, Marcelo Carpenter of Sergio Bermudes Law Office, David Kelleher of Fortress Investment Group (Australia) Pty Ltd., and Fidelis Oditach of South Square discussed the key decision-making factors of investing in a similarly-situated oil and gas company. Some of the key takeaways applicable to investing in oil and gas companies generally were:
- while oil prices are unlikely to see an increase to 2010-2014 prices, the recent dramatic decrease in oil prices still makes oil and gas investments potentially attractive, other factors considered;
- oil and gas companies require significant front-end capital expenditures and require patient investors to realize long-term returns—typically private equity firms looking for a form of equity stake;
- it may be advantageous to require a company to file for a formal reorganization proceeding in order to take advantage of post-petition financing priority;
- investors must be knowledgeable regarding applicable statutory penalties for environmental claims when determining a company’s liabilities as these liabilities often have priority status;
- in some jurisdictions, such as Brazil, lenders may be liable for environmental liabilities and structuring the financing to avoid such liability is key; and
- in considering a venue for a restructuring proceeding, careful attention must be paid to the ability to recognize the restructuring plan in jurisdictions in which the company holds assets, e.g., UK courts may not recognize discharge of debts under UK-governed agreements through a foreign proceeding.
While investment considerations obviously vary depending on a company’s particular circumstances, the panel discussion demonstrated the complexity of the decision-making process and did a great job identifying the key risks and considerations when dealing with a distressed oil and gas company.