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COVID-19 and the Energy Industry

CM - Guidelines for Seeking Coronavirus Relief Funds 1

Oil markets have experienced extreme volatility amid rising concerns over the economic impacts of COVID-19. Oversupply, exacerbated by the recent price war between Russia and Saudi Arabia, has driven commodity prices to fall nearly 70% since the beginning of the year, slumping to their lowest levels since the Great Depression.

As the lingering effects from the oil price war and the challenges imposed by the coronavirus pandemic continue to be felt, it is becoming increasingly clear that the energy industry will likely face substantial headwinds in 2020. As a result, many companies will be forced to restructure, whether through out-of-court negotiations or a Chapter 11 proceeding.

Key focus areas

The following priorities are fundamental for effective crisis management and business continuity planning:

1

Focus on near-term liquidity and access to cash

Update and stress-test liquidity forecast

Evaluate financial covenants and engage with lenders

Consider alternative sources of available credit

2

Reduce operating costs

Look for opportunities to temporarily reduce costs

Create new performance metrics and reporting to monitor and manage operational efficiencies

Focus on risk management and ensure environmental, health, and safety procedures are not compromised

3

Bankruptcy protection

In severe cases (such as failed negotiations with lenders), consider Chapter 11 bankruptcy protection

4

Safety Procedures

Ensure the health and wellbeing of employees, customers, and vendors by modifying work and safety procedures

5

Limit cash outflows and reduce liabilities

Reduce discretionary capital expenditures

Analyze impact of nondiscretionary capital expenditures and associated costs of noncompliance

Discuss with governmental and state agencies to defer remediation expenditures and temporarily decreased royalties

Renegotiate and extend payment terms on mandatory expenditures, if possible

6

Access Liquidity

Access liquidity by selling non-core or underperforming businesses, segments, profit centers, or assets

7

Negotiations with Lenders

Restructure debt with out-of-court negotiations with lenders or eliminate service burden

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