A Metairie-based oil company that’s one of the largest independent operators still working in the state’s shallow coastal waters has filed for bankruptcy protection, leaving dozens of south Louisiana service and supply companies facing potential bankruptcies of their own.
Cox Operating LLC executives have blamed the pandemic, OPEC price wars, the hurricanes of 2020 and 2021, and an accident that damaged one of their oil platforms for the company’s woes. Bankruptcy court documents show Cox’s estimated liabilities are close to $500 million — more than $200 million of which is owed to small businesses in the Houma-Thibodaux and Acadiana areas.
Court documents indicate that Cox followed a path that led to financial trouble for other companies in recent years: using debt to acquire large fields of aging wells in shallow Gulf waters.
Those who have made their livelihoods servicing oil and gas companies, like Keystone Chemicals owner Jeff Delahoussaye, who is a Cox creditor, have weathered the boom-bust cycle of the energy sector for decades. This bankruptcy, they say, is particularly worrisome.
“If I can get the money they owe me, I can survive and move on,” said Delahoussaye, whose Broussard company is owed $2.8 million from Cox. “Some of the smaller companies are going to have to file for bankruptcy. It’s going to have a domino effect.”
An attorney for Cox Operating declined to comment.
Risky bet
Founded in 2004, Cox Operating is a privately held company that operates over 600 wells in more 60 fields located in shallow Gulf of Mexico waters mostly off the coast of Louisiana. The wells are not owned by Cox Operating but by Cox-affiliated entities that are registered in Louisiana and in Texas, where Cox majority owner Brad Cox lives.
The company buys up aging wells that have been abandoned by larger independent and major oil companies like Chevron and BP, which now operate in deep offshore waters.
Oil and gas production in the shallow Gulf, where Cox was focused, has been declining for the past two decades. When oil prices are high, operating those older wells can still be profitable. But when prices plummet, as they did during the pandemic, it’s tough going — especially for a company that has a lot of debt on its books.
An oil platform sits in the Gulf of Mexico. (Photo courtesy of Fieldwood Energy)
“Companies (like Cox) have borrowed money to take over these wells and are pumping the last little bits out of them,” said Eric Smith, an energy expert at Tulane University’s A.B. Freeman School of Business. “When the price of oil drops, they can’t afford to pay their bills.”
Hundreds of employees
At the time of its bankruptcy court filing in mid-May, the company employed more than 430 people at offices in Houston, Dallas and Metairie. It estimated both its assets and its liabilities to be between $100 million-$500 million, though subsequent court documents indicate the debt is at least $500 million.
The company owes $250 million to BP and $80 million to Amarillo Bank. It owes another $8 million in bond premiums that guarantee the performance of plugging and abandonment obligations. And it owes $211 million to unsecured trade creditors, three-quarters of whom are located in south Louisiana.
Gulf Offshore Logistics in Raceland is the largest of those trade creditors. It is owed $24.7 million for providing offshore marine transport to Cox. Like dozens of other creditors, GOL executives declined to comment on the bankruptcy.
Gray-based Danos is out nearly $8.6 million for providing engineering and fabrication services for Cox. In a prepared statement, Danos President and CEO Paul Danos didn't comment on the debt, but said officials “are focused on supporting our customer and ensuring Danos employees working on Cox assets continue performing their jobs safely and in an operationally excellent manner.”
Leslie Hanks’ family-owned business, Total Production Supply, is owed $1.5 million for offshore supplies it sold Cox. Though the amount is small compared to what is owed to some of the larger businesses, to the Broussard-based supply house, it’s enough to put them under.
“I’m like the Walmart for the Gulf. I can go out and get anything an operator needs to go offshore,” Hanks said, tearing up on the stand in a bankruptcy court hearing in late May. “Now, I have all these unpaid invoices, a warehouse full of inventory I can’t return.”
Depressed area
In 2019, Cox took on new debt when it acquired some aging wells from a bankrupt company. Smith, of Tulane, said it might have been a good bet had the pandemic and OPEC price wars not driven oil prices down to almost $0 a barrel at one point in 2020. Then several hurricanes hit in rapid succession, driving still more production offline.
“Unfortunately, that is a very depressed part of the Gulf of Mexico and it is not coming back,” Smith said.
Adding to the dynamic is the growing cost of plugging older, abandoned wells. According to LSU Center for Energy Studies Interim Executive Director Gregory Upton, the plug and abandonment cost of the 14,000 unplugged, nonproducing wells in the Gulf is $30 billion.
Old oil wells can be found throughout Louisiana's coastal waters. (Times-Picayune file photo)
In recent years, several high-profile companies that owned a lot of these wells have gone bankrupt, which has gotten them out from under the liability of plugging the abandoned wells.
It's not clear what will happen to the wells operated by Cox. Upton said other companies have declared bankruptcy to "essentially be non responsible for plugging wells."
Venue battle
Delahoussaye testified in court last month that suppliers had heard rumors the company was having trouble, but that Cox had denied it and continued ordering more supplies and services, which were often sold on generous credit terms.
“They used the vendors to finance the operations,” Delahoussaye said. “At the end of the day, they filed bankruptcy and left us holding the bag.”
Delahoussaye is one of six creditors who forced Cox into filing bankruptcy. The "involuntary" Chapter 7 suit was filed last month in the U.S. Eastern District of Louisiana, which is based in New Orleans. Chapter 7 bankruptcy means a company will be liquidated to pay off its debts.
Before company executives could be served with papers, however, the company filed its own voluntary Chapter 11, or reorganization, petition for bankruptcy protection in the U.S. Southern District of Texas, which bankruptcy attorneys said is sometimes seen as a more favorable venue for indebted companies. At a hearing last month in New Orleans, Delahoussaye, Hanks and other local businesses argued to keep the case here.
U.S. Bankruptcy Court Judge Meredith Grabill sided with Cox, transferring the case to Texas.
It is unclear whether the company will now convert its case to a Chapter 7 and sell off all its assets, or try to work on a reorganization plan. But an earlier attempt to restructure its debt was unsuccessful, court documents say.
Smith says because of activity in related petrochemical businesses, impacted workers will probably be able to find jobs fairly easily.
"I don’t think you’re going to see massive unemployment showing up as a result of these bankruptcies," he said. "But you will see these financial and trade creditors take a hit."
