Struggling Controversial Oil and Gas Company Files for Chapter 11 Bankruptcy

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Hydraulic fracturing, or fracking, remains one of the most controversial environmental methods in the U.S. and worldwide. Many states banned it, while some, like Texas, banned banning fracking. This and other issues forced Nitro Fluids, an oil and gas company, to file for Chapter 11 bankruptcy reorganization.

The filling

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The company filed for bankruptcy on May 15 in the U.S. Bankruptcy Court for the Southern District of Texas. The filing cited that the company failed to implement a marketing process for at least one transaction. Its petition listed assets and liabilities as $50 million to $100 million. 

Financial distress

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Nitro Fluids, founded in 2010, faced financial distress due to an income decline over industry consolidation. The news about the bankruptcy came a month and a half after the Houston federal court jury recently decided Nitro Fluids LLC owes Cameron International Corporation more than $8.9 million. 

The lawsuit

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Cameron International Corporation sued Nitro Fluids in 2018 for patent infringement. Nitro admitted infringement after Cameron obtained a pretrial summary judgment. Nitro then aimed to invalidate Cameron’s patents.

The final decision 

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The trial’s outcome likely influenced the bankruptcy filing. The court papers stated that the final ruling could be between $3 million and $27 million. A Chapter 11 filing, however, implements an automatic stay on all legal actions against Nitro.

Fracking bans

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California, Delaware, Florida, Maryland, New Jersey, New York, Pennsylvania, Oregon, Vermont, and Washington banned the fracking process. In 2015, Texas banned the bans on it. 

The process

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The process involves injecting liquids and materials at high pressure to create minor fractures within tight shale formations, stimulating production, and extracting oil and gas after drilling. The rig and derrick are removed from the site, as described on the Independent Petroleum Association of America’s website.

The risks 

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Numerous environmental groups objected to fracking because it is reported it could lead to water contamination, negatively impact wildlife, air and water quality, and waste disposal can cause seismic occurrences. Some groups fighting the process include the Sierra Club and Americans Against Fracking. 

In support of the process

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The Independent Petroleum Association of America, one of the pro-fracking organizations, described it as a unique American success story that already benefited the country immensely. In contrast to the Sierra Club and Americans Against Fracking, this organization argued that fracking reduced greenhouse gas emissions to 25-year-low and contributed to better air quality.

Back and forth 

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After the Independent Petroleum Association of America commented on the air quality, the Sierra Club fired back. The organization stated that methane released through extraction and transport is 86 times more potent as a greenhouse gas than CO2 over a 20-year timeframe.

The challenges 

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In 2023, the hydraulic fracturing industry encountered major challenges due to the consolidation of U.S. crude oil and natural gas exploration and production companies. According to the U.S. Energy Information Administration, mergers and acquisitions in the sector amounted to about $234 billion, the highest since 2012.

The company in numbers 

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The debtor had approximately $234,000 cash on hand on the day of the filing. According to the filing, it owed $38.2 million in funded secured debt obligations and $14.4 million in unsecured debt. Monthly revenue declined from $1.2 million in 2023 to less than $100,000 in March 2024. 

The sources of the decline

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The court papers stated that the decrease in revenue was caused by Nitro’s customer base consolidating due to mergers. Nitro’s customer Earthstone was acquired by Permian Resources (PR) in November 2023, resulting in a 50% revenue decrease for Nitro within a short period of time. 

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