• 4 mintues Texas forced to have rolling brown outs. Not from downed power line , but because the wind energy turbines are frozen.
  • 7 minutes Forecasts for oil stocks.
  • 9 minutes Biden's $2 trillion Plan for Insfrastructure and Jobs
  • 13 minutes European gas market to 2040 according to Platts Analitics
  • 1 day America's pandemic dead deserve accountability after Birx disclosure
  • 12 hours Fukushima
  • 32 mins Today Biden calls for Summit with Putin. Will Joe apologize to Putin for calling him a "Killer" ?
  • 47 mins Simple question: What is the expected impact in electricity Demand when EV deployment exceeds 10%
  • 18 hours CO2 Mitigation on Earth and Magnesium Civilization on Mars – Just Add Water
  • 56 mins Biden about to face first real test. Russia building up military on Ukraine border.
  • 5 hours U.S. Presidential Elections Status - Electoral Votes
  • 16 hours New Chinese Coal Plants Equal All those in U.S.A
  • 3 days Does .001 of Atmosphere Control Earth's Climate?!
  • 4 days U.S. and Chinese investors to buy Saudi pipelines , $10 Billion deal.
  • 2 days Oh the Dems!!! They cheer for helping people while stabbing them in the back!!! Enbridge asks Canadian government to support oil pipeline in dispute with Michigan
  • 3 days The coming Cyber Attack
  • 4 days NG spot prices hit triple digits for weekend delivery
Many Drilled U.S. Wells Will Never Be Completed

Many Drilled U.S. Wells Will Never Be Completed

Fracking crews are increasing their…

Optimism Grows Over Oil Demand Recovery

Optimism Grows Over Oil Demand Recovery

Despite a third wave of…

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

More Info

Premium Content

U.S. Shale Faces Another Round Of Bankruptcies

More than thirty billion dollars: this is the size of the collective debt of oil and gas companies that filed for bankruptcy protection in the first half of the year. That is 23 companies, all but five of which filed during the second quarter when Covid-19 really took hold. Now, with the resurgence of new cases and an equal resurgence in doubts about the outlook for oil demand, more filings are on the way. “It is reasonable to expect that a substantial number of producers will continue to seek protection from creditors in bankruptcy even if oil prices recover over the next few months,” Haynes and Boone said in its June report on oil and gas bankruptcies. The reasons: lukewarm oil demand improvement and even more lukewarm economic improvement. Until economies return to normal, the law firm noted, the situation for oil and gas is unlikely to book any marked improvement.

Yet within the industry, different segments have different degrees of vulnerability. Oilfield services, for instance, is the most vulnerable, as Westwood Global Energy Group noted in a recent report. Oilfield services are traditionally the most vulnerable because of their almost complete dependence on the upstream segment. When exploration and production slump, the companies actually providing these services suffer the most, as we saw during the last crisis. While the upstream segment also took a hard hit from the 2014-2016 oil price collapse, it was not as painful as it was for their services providers. The latter were forced to lower the prices of their services to survive, which in turn helped producers to limit their losses.

Yet the upstream sector is in dire straits now, as well, especially in U.S. shale, Westwood Global Energy Group’s Head of Consulting, Arindam Das, noted in comments to Oilprice.com. According to Das, shale producers are the most vulnerable group within the oil and gas industry after oilfield service providers, along with smaller exploration and production companies in Western Canada.

Remember those 30 billion dollars in debt accumulated by the companies that went bankrupt during the first half of the year? The exact figure is $30.62 billion, and it compares with $25.77 billion in accumulated debt for all the companies that went under throughout 2019. In the second quarter alone, the energy companies that filed for bankruptcy protection accumulated $29 billion in debt—again more than the figure for the entire last year. And banks are increasingly reluctant to do business with such a troubled industry.

Related: Asian LNG Prices Are Way To Low For U.S. Exporters

Lenders started tightening their requirements for borrowers from the shale patch before the crisis, as many of them kept failing to hit their production targets despite the overall production boom. Now, with the outlook grimmer than it has been for a long time, they are tightening their lending requirements further, although, as Westwood’s Das notes, banks remain open to businesses with long-standing good names.

Here again, oilfield services providers are in a weaker position than pretty much everyone else. Banks have been reducing their exposure to this segment of the industry for a while before the crisis struck, according to Das, and it seems they will continue doing that while they tighten their lending criteria for the sector players that are still their clients.

Perhaps a consolidation could help the U.S. oil and gas industry get back on its feet, but so far, the only major deal that made headlines was Chevron’s acquisition of Noble Energy. Uncertainty is a big factor here. The future of the industry, especially the shale patch, is highly uncertain, and this may be dampening the appetite of private equity-backed companies that would have otherwise swooped in to pick up the tastiest morsels.

This might change, according to Das. Private equity-backed buyers could yet decide to take advantage of the low oil price environment that is making a lot of assets cheap. If that happens, they will go after cash generative assets, Das noted, rather than assets in the early stages of development that would require a hefty investment to exploit. Indeed, this seems to be the prevailing sentiment in the industry.

“We will be drilling wells again when oil is back in probably the $50 range,” David Hayes, partner at Natural Gas Partners, told the Midland Reporter-Telegram earlier this year. “It will be unconventional, and it will be horizontal, but it will be much more development-focused. Anything with even a whiff of exploration is not a near-term focus for capital, public or private.”

Nobody, it seems, wants to risk too much, and this is understandable: the situation is unprecedented.

“Since humans started using oil, we have never seen anything like this,” the chief economist of Trafigura, Saad Rahim, told the Wall Street Journal in April. “There is no guide we are following. This is uncharted.” 

In such an environment, caution would be the name of the game for everyone—sellers and buyers, lenders, and shareholders.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News