Bankruptcy on the Horizon: Offshore Supply Companies Prepare

Companies engaged in supplying offshore services, an essential corner of the oil sector here in Louisiana, should be preparing for the potential increase in bankruptcies as the worst crude market downturn in decades spreads. More than half of the public companies in the offshore supply-vessel industry face a high probability of restructuring or bankruptcy, according to research conducted by the consulting firm AlixPartners.

 

Supply vessels are a lifeline to the rigs, hauling everything from people to pipes to food. Moreover, they’re custom-made for the oil industry and depend on the rigs for work; when the rigs slow down, so too does this custom-made supply chain.

 

There are now more than five supply vessels for each offshore drilling rig, up from roughly three vessels per rig in 2008. With the falling demand, companies have been forced to make hard changes

 

Close to home, one of Louisiana’s largest offshore supply companies is set to have more than 30 OSVs fleet stacked by year-end as the slump in oil prices continues to wreak havoc on the offshore market. The 30 stacked vessels will represent about half of the company’s OSVs. It’s fleet currently consists of 59 OSVs, but that is expected to increase to 61 vessels if scheduled deliveries in Q4 go according to plan.

 

Back in April, the company reported 18 new generation OSVs stacked in its Q1 results. At the time, the company said the lay-ups were part of aggressive cost cutting measures undertaken in response to soft market conditions. Other measures included company-wide headcount reductions and across-the-board pay-cuts for shore-side personnel. The company reported that for the third quarter of 2015, revenues were $116.3 million, a decrease of $50.6 million, or 30.3%, from the same period last year.

 

Following an early December 2015 statement from the Organization of Petroleum Exporting Countries, that it was essentially lifting its production target for crude, we should prepare for oil prices to remain lower for longer than previously expected. According to Transocean Ltd., the world’s largest supplier of offshore drilling rigs, the challenging offshore market is expected to last into 2017.

 

AlixPartners looked at 33 publicly traded companies as part of their study, and found that the amount of debt those companies carry compared with earnings before interest, taxes, depreciation and amortization, which is known as leverage, climbed over the year end in June – often a precursor to restructuring or bankruptcy.

Hercules Offshore Finished with Chapter 11 Bankruptcy

In September of this year, the U.S. Bankruptcy Court in Delaware approved Hercules Offshore’s restructuring plan, which proposed to give control of the company to its bondholders in exchange for debt forgiveness. Under the plan, the bondholders swap out $1.2 Billion in debt for control of the company. The bondholders pledged a $450 million dollar loan to fund the company’s exit, which would fast-track its exit out of Chapter 11. With a signed deal with the bondholders, along with its 900 million in revenue, and roughly 80 million in cash on hand, Hercules Offshore believed it was in a good position to overcome the industry’s downturn due to record low oil prices. At the time of the approved restructuring plan, the company stated it hoped to be out of bankruptcy by November.

 

True to its word, during the first week of November, the company confirmed it has completed its financial restructuring and has emerged from Chapter 11 bankruptcy.

 

http://www.worldoil.com/news/2015/11/09/hercules-offshore-emerges-from-bankruptcy

 

Day with the DOL in New Orleans

Loyola University hosted its annual “Day with the DOL” seminar on Tuesday, December 8th in New Orleans, Louisiana. The panelists at this year’s seminar included Administrative Law Judge Patrick Rosenow, David Duhon, District Director of the 7th Compensation District, OWCP, Mouledoux, Bland, Legrand, & Brackett’s very own Alan Brackett, and Jeffery Briscoe of the Law Offices of Art Brewster.

 

The panelists talked the attendees through the claims process at the Office of Workers’ Compensation Program level, which includes attending Informal Conferences with claims examiners, and submitting settlement agreements to the District Director for review. Among the many practice points discussed, District Director Duhon emphasized the timeliness requirements for filing standard Department of Labor pleadings throughout the life of a claim. For example, in order to avoid penalties, a Longshore employer must file a Form LS-202, Employer’s First Report of Injury, within 10 days of a work-related injury that leads to lost time. District Director Duhon cautioned that an employer should follow the “better safe than sorry” method when reporting workplace injuries. He also cautioned that, in accordance with Section 14(f) of the Act, the employer/carrier shall pay a claimant an award within 10 days of the service of the District Director’s Order, or else a penalty in the amount of 20% of the award will be assessed against the Employer and Carrier. As a practice point, Mr. Brackett noted that many Carriers first send the award checks to counsel prior to submission of the Settlement Agreement to the District Director for review. District Director Duhon also requested that counsel pay special attention to the requests for documentation made by claims examiners, as required by Section 30(b).

 

The panelists also addressed the often-litigated issues of attorney’s fees. The attendees, which included members of both claimants’ bar and defense bar, discussed the intricacies of proper attorney fee submission. For example, Mr. Brackett suggested that more detailed entries are less vulnerable to objection by defense counsel. Judge Rosenow acknowledged the delays often associated with fee petition adjudication at the Office of Administrative Law Judges and indicated that the claimants’ bar can expect to see a more timely review process implemented.

 

Judge Rosenow also addressed the OALJ’s current caseload, advising the attendees that the Longshore docket might soon be hampered by the influx of Black Lung claims. The attendees acknowledged, as a practice point, that any anticipated delay in setting hearing dates might prompt settlement of more claims prior to formal hearings. The panelists also instructed the attendees on the use of the newly-implemented OALJ online search function, which allows a user to search a claim’s status and the documents previously filed. While the search function is not yet as technologically advanced as the DOL’s SeaPortal site, it is highly efficient.

 

Overall, the panel discussion was quite informative and beneficial to all those in attendance. For any questions related to the discussion, or for practical advice for litigating at the OWCP or OALJ level, please feel free to contact us.

Coast Guard to Increase the Limits of Liability under Oil Pollution Act of 1990

The Coast Guard is issuing a final rule which increases the statutory limits of liability for vessels, deepwater ports, and onshore facilities, under the Oil Pollution Act of 1990 (OPA 90). The increase is standard procedure for the Coast Guard, as it is required by the OPA 90 to adjust the statutory limits every three years to reflect the increases in the Consumer Price Index. Under Title I of the OPA 90, the responsible party for any vessel or any facility from which oil is discharged, or which poses a substantial threat of discharge of oil, into navigable waters or adjoining shorelines…are strictly liable, jointly and severally, under 33 U.S.C. §2702 for removal costs and damages resulting from the incident. Yet, a responsible party’s liability is limited to a specified dollar amount, pursuant to 33 U.S.C. §2702.

 

To prevent the real value of the statutory limits from depreciating over time, and preserve the “polluter pays” principle embodied in the OPA 90, 33 U.S.C. §2704(d)(4) requires that the limits of liability be adjusted “not less than every three years…to reflect significant increases in the Consumer Price Index.” The timing of the three-year adjustment is rather unfortunate for oil and gas companies, given that the industry is currently facing bleak economic conditions with record low oil prices.