Independence Contract Drilling (ICD), a Houston-based provider of oil and gas drilling services, filed for Chapter 11 bankruptcy protection on Monday in a Texas court. The move comes as the company grapples with over $230 million in debt and a rapidly declining market for its services. ICD’s filing includes a prepackaged debt-swap restructuring plan aimed at slashing its liabilities and positioning the company for future growth.

The filing reveals that the downturn in U.S. onshore drilling activity over the last six years has significantly affected ICD’s operations. With fewer oil and gas wells being drilled across the country, demand for drilling rigs and crews has plummeted, leaving the company unable to meet its financial obligations.

Debt Swap Restructuring Plan to Ease Financial Burden

The bankruptcy filing outlines a detailed restructuring plan that proposes converting $206.8 million in convertible notes into full equity ownership of ICD. Meanwhile, all remaining secured debts and unsecured trade claims will be paid off in full. Anthony Gallegos Jr., ICD’s president and CEO, expressed confidence in the plan’s ability to reduce the company’s debt load and provide greater financial flexibility.

“We are excited that, as part of the restructuring, our noteholders—who bring substantial oilfield experience—will provide us with the additional capital needed to support rig reactivations and technology enhancements for our fleet,” said Gallegos in a statement. The plan also includes $32.5 million in Chapter 11 financing and $40 million in exit financing, ensuring ICD’s immediate liquidity needs are met.

Macroeconomic Factors and Market Conditions Lead to Struggles

ICD’s financial woes have been compounded by several macroeconomic factors, including the fallout from the COVID-19 pandemic, which wreaked havoc on the global economy and further depressed demand in the oil and gas sector. According to the company’s filing, 2019 saw significant market volatility in commodity prices, leading to a sharp decline in rig counts. This decline hit its lowest point in August 2020 when the U.S. land rig count fell to an all-time low of just 230 rigs.

Although ICD began to recover in the aftermath of the pandemic, the company faced additional setbacks as natural gas prices plummeted in late 2022. This oversupply of gas led to a reduction in demand for rigs, particularly in the Haynesville Shale region, which accounts for about half of ICD’s rigs.

Industry Consolidation Contributes to Declining Market Share

ICD also pointed to increased customer consolidation within the U.S. land drilling industry as a contributing factor to its financial troubles. Over the past 18 months, the top 15 exploration and production companies in the U.S. grew to control 43% of the rig count across Texas, New Mexico, and Louisiana. By November 2023, this share ballooned to 62%, with the five largest drillers claiming 84% of the market. As a result, ICD’s customer base shrank, and it received six rig release notices from clients in 2024 as a result of this consolidation.

The company's declining rig count and cash flow have led to a significant drop in earnings before interest, taxes, depreciation, and amortization (EBITDA). ICD’s EBITDA dropped from $19.5 million in the first quarter of 2023 to just $5.4 million by the third quarter of 2024.

Failed Sale Efforts and Future Plans

In March 2024, ICD attempted to explore potential sale options under the guidance of Piper Sandler & Co., but the efforts did not result in any viable offers to help address the company's mounting debt. Despite these setbacks, the company remains hopeful that its restructuring plan will enable it to stabilize its finances and continue to operate as a competitive player in the industry.

ICD, which employs around 387 workers and operates in Texas and Louisiana, has retained Riveron as its restructuring advisor and Piper Sandler as its investment banker. The company is being represented in its bankruptcy proceedings by law firm Sidley Austin LLP, with a team led by Duston McFaul, Maegan Quejada, and Michael Sabino.