Lenders to the oil and gas sector have commenced “difficult conversations” with clients since the start of 2016 as fears that the industry’s woes would continue took hold, a corporate restructuring specialist has explained.
Blair Nimmo, UK head of restructuring for KPMG, said that landers’ attitudes switched from “passive supportive”, which has resulted in “a significant number of corporate banking customers having their accounts transferred into the restructuring arms of the banks”.
Mr Nimmo, whose team has handled at least three major administrations in the north and north-east since the start of the year, said: “With earnings projections now tracking substantially lower against capital structures that were founded in very different times, covenant resets, capital repayment holidays and wholesale balance sheet restructurings are likely to feature fairly high on the wish list for some in the near future.
“In many respects this represents the hidden challenge for the industry,” he added.
KPMG has been involved in selling assets of failed firms including SeaEnergy, Enterprise Engineering Services and the Port of Ardersier in recent months.
But he said that while the outlook for the sector is “tough it is not without hope”.
He said: “Clients who are navigating these difficult conversations and pitching their prospects in a well thought through fashion are finding continued appetite for support amongst lenders.
“There also appears to be a fair appetite for investment in stressed and distressed businesses so insolvency does not necessarily equal the end of the road for all those involved.
“Businesses, including those that are succeeding in trading successfully – and many are – also need to be maintaining a high state of vigilance and contingency planning in relation to the less obvious challenges.
“Companies need to model the domino effect that could flow from the failure of an operator, the cancellation or deferment of a major project, or the failure of a major customer or supplier alongside the more easily foreseen impacts of contractor cuts or further supply chain reductions.
“There is no doubt that the oilfield services and supply chain landscape is going to look very different in two years’ time but there are steps that businesses experiencing stress and distress can take now to improve the likelihood of them surviving to capitalise on the upturn when it arrives.
“The threat of a liquidity crisis is real but it is not inevitable.”