Investors Beware: These 3 Oil Companies Could Go Bankrupt

Don’t be fooled by the low share price of Penn West Petroleum Ltd. (TSX:PWT)(NYSE:PWE), Lightstream Resources Ltd. (TSX:LTS), and Twin Butte Energy Ltd. (TSX:TBE).

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Now that crude oil is flirting with $50 per barrel, many value investors are once again starting to sniff around the energy sector.

I think this is a fine strategy provided oil stays around $50 per barrel. All of the underlying stats I’m seeing–things like inventory levels, rig counts, and production projections–do point to crude staying higher. Low prices have done exactly what they’ve done before, which is to discourage production.

But as we all know, the price of crude is extremely unpredictable. If you would have asked me in mid-2014 if we would see sub-$30 oil sometime in the next two years, the answer would have been a resounding no.

Because the price of oil is so volatile, it’s important for any value investor to make sure any investment in the sector has a solid balance sheet. Because oil has been down for so long now, many of the weaker producers are in danger of bankruptcy unless oil recovers in a big way very soon. Since we can’t count on that to happen, we have to be very careful when looking at these types of stocks.

Here are three oil companies I think are on their last legs.

Penn West

Penn West Petroleum Ltd. (TSX:PWT)(NYSE:PWE) is the perfect example of what can happen to a producer in low price environment.

Penn West was drowning in debt, so management started selling off non-core assets. As the price of crude continued to fall, so did the value of these assets. Since buyers knew Penn West needed these assets to go away, this further complicated the selling process. It’s easy to negotiate with a desperate seller.

These days, Penn West still owes $1.86 billion to creditors. It recently announced it was going to enter negotiations with its debtholders for the second time in as many years, hoping for some sort of loan relief. If a compromise can’t be reached, Penn West may technically default on June 30. That’s not good news, no matter how you spin it.

Twin Butte

Over the past five years, Twin Butte Energy Ltd. (TSX:TBE) is down a whopping 97.6%, falling from $2.75 per share all the way to $0.065 . At least it paid a dividend from 2012 to 2015.

Twin Butte has nearly $210 million in debt coming due over the next year, including $85 million that was due on April 30. Lenders have agreed to push the due date of this latest maturity back a month as the company looks to sell assets to pay back the loan. We’re very close to the deadline, and nothing has been announced yet.

There’s always the possibility something gets negotiated. At this point, however, it’s not looking good.


The Lightstream Resources Ltd. (TSX:LTS) story is similar to those of Penn West and Twin Butte. It simply owes too much money to too many creditors.

On May 2, Lightstream’s bank creditors decreased the amount the company could borrow on its credit facility from $550 million to $250 million. Since the balance was $371 million, this meant Lightstream had only 90 days to sell more than $120 million in assets.

Even if the company is able to dig itself out of this latest hole, its total debt is more than $1.55 billion. That’s too much, especially for a company with production that recently dropped 25%. I’m not sure how Lightstream will avoid bankruptcy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith has no position in any stocks mentioned.

More on Energy Stocks

A meter measures energy use.
Energy Stocks

Energy Investing: What Every Canadian Needs to Know

Here’s what savvy Canadian investors need to know about energy investing today, straight from Motley Fool Hidden Gems advisor Jim…

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

Gold vs. Oil: Which Commodity Is a Stronger Bet for Inflation?

Increasing commodity prices make gold stocks and oil stocks attractive assets to own, but oil stocks might be the better…

Read more »

TSX Today
Energy Stocks

TSX Today: What to Watch for in Stocks on Thursday, June 23

The U.S. Federal Reserve chair Jerome Powell’s testimony before Congress could continue to keep TSX stocks highly volatile today.

Read more »

Canadian energy stocks are rising with oil prices
Energy Stocks

Why Tourmaline Oil Stock Still Looks Strong

Tourmaline Oil has been on a dividend-hike streak this year.

Read more »

oil and natural gas
Energy Stocks

3 Cheap TSX Energy Stocks With Fast-Growing Dividends

TSX energy stocks are down 10% in the past week. Here are three cheap oil stocks I'd pick up for…

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

From a Big Bank: Suncor (TSX:SU) Is the Best-in-Class Operator

A big bank recommends a buy rating for an oil bellwether because of its strong free cash flows and restored…

Read more »

TSX Today
Energy Stocks

TSX Today: Why Stocks Could Fall on Wednesday, June 22

Renewed selling pressure in global stock markets and a sharp drop in commodity prices could take TSX stocks lower at…

Read more »

Oil pumps against sunset
Energy Stocks

Suncor Energy (TSX:SU): Is the Stock Now Oversold?

Suncor stock looks cheap today. Here's why.

Read more »