• 1 hour Turkey Targets $5B Investment In Wind Energy By End-2017
  • 3 hours Weatherford Looks To Sell Assets To Ease Some Of $8B Debt
  • 4 hours OPEC Set To Move Fast On Cut Extension Decision
  • 6 hours Nigeria Makes First Step Away From Oil
  • 18 hours Russia Approves Profit-Based Oil Tax For 2019
  • 22 hours French Strike Disrupts Exxon And Total’s Oil Product Shipments
  • 1 day Kurdistan’s Oil Exports Still Below Pre-Conflict Levels
  • 1 day Oil Production Cuts Taking A Toll On Russia’s Economy
  • 1 day Aramco In Talks With Chinese Petrochemical Producers
  • 1 day Federal Judge Grants Go-Ahead On Keystone XL Lawsuit
  • 1 day Maduro Names Chavez’ Cousin As Citgo Boss
  • 2 days Bidding Action Heats Up In UK’s Continental Shelf
  • 2 days Keystone Pipeline Restart Still Unknown
  • 2 days UK Offers North Sea Oil Producers Tax Relief To Boost Investment
  • 2 days Iraq Wants To Build Gas Pipeline To Kuwait In Blow To Shell
  • 2 days Trader Trafigura Raises Share Of Oil Purchases From State Firms
  • 2 days German Energy Group Uniper Rejects $9B Finnish Takeover Bid
  • 2 days Total Could Lose Big If It Pulls Out Of South Pars Deal
  • 2 days Dakota Watchdog Warns It Could Revoke Keystone XL Approval
  • 3 days Oil Prices Rise After API Reports Major Crude Draw
  • 3 days Citgo President And 5 VPs Arrested On Embezzlement Charges
  • 3 days Gazprom Speaks Out Against OPEC Production Cut Extension
  • 3 days Statoil Looks To Lighter Oil To Boost Profitability
  • 3 days Oil Billionaire Becomes Wind Energy’s Top Influencer
  • 3 days Transneft Warns Urals Oil Quality Reaching Critical Levels
  • 3 days Whitefish Energy Suspends Work In Puerto Rico
  • 3 days U.S. Authorities Arrest Two On Major Energy Corruption Scheme
  • 4 days Thanksgiving Gas Prices At 3-Year High
  • 4 days Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 4 days South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 4 days Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 4 days Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 4 days Iraq Steps In To Offset Falling Venezuela Oil Production
  • 4 days ConocoPhillips Sets Price Ceiling For New Projects
  • 7 days Shell Oil Trading Head Steps Down After 29 Years
  • 7 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 7 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 7 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 7 days Venezuela Officially In Default
  • 7 days Iran Prepares To Export LNG To Boost Trade Relations
Alt Text

The Wireless Power Grid: More Than A 100 Years In The Making

In fulfilling Nikola Tesla’s dreams,…

Alt Text

Who's Next? Venezuela's Collapse Puts These Nations At Risk

While investors have been ignoring…

Alt Text

Norway’s $35B Oil Stock Dump Could Hurt The Industry

The world’s largest sovereign wealth…

Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

More Info

35% Of Public Oil Companies Could Face Bankruptcy

35% Of Public Oil Companies Could Face Bankruptcy

More than one-third of public oil companies globally face bankruptcy, according to a new Deloitte report that paints a fairly gloomy picture of the U.S. shale patch as it struggles to survive under mountains of debt.

The Deloitte report—the first high-profile report on the current financial situation of global oil and gas companies—surveyed 500 companies and found that 175 are facing “a combination of high leverage and low debt service coverage ratios”.

“[…] nearly 35 percent of pure-play E&P companies listed worldwide, or about 175 companies, are in the high risk quadrant,” Deloitte noted, adding that the situation is “precarious” for 50 of these companies due to negative equity or leverage ratio above 100.

“Stock prices of some of these has already dipped below $5, making them penny stocks. The probability of these companies slipping into bankruptcy is high in 2016, unless oil prices recover sharply, a large part of their debt is converted into equity, or big investors infuse liquidity into these companies.” Related: A Home-Battery System that Could Rival Tesla

Reports about the growing numbers of bankruptcies among U.S. shale producers aren’t new, but the Deloitte findings reinforce the picture.

“More than 80 percent of U.S. E&P companies who filed for bankruptcy since July 2014 are still operating (Chapter 11) under the control of lenders or the supervision of bankruptcy judges,” according to Deloitte.

“However, the majority of these Chapter 11 debt restructuring plans were approved by lenders in early 2015, when oil prices were $55-60/bbl. Since then, prices have fallen to $30/bbl, and hedges at favorable prices have largely expired, making it tough for existing Chapter 11 bankruptcy filers to meet lenders’ earlier stipulations and increasing the probability of US E&P company bankruptcies surpassing the Great Recession levels in 2016.”

Shale producers amassed huge debts that they are now struggling to service in the oil price downturn. Related: Oil Price Rally Comes Undone As U.S. Crude Inventories Build

According to AlixPartners, these debts totaled $353 billion for U.S. and Canadian energy companies at end-2015. To compare, Deloitte puts the combined debt of those 175 bankruptcy-threatened companies at more than $150 billion, nearly half of the total for US and Canada.

That’s a lot of debt that needs servicing or restructuring. Unfortunately, things in the industry are so bad that the usual solutions don’t work as effectively as they normally would. For starters, demand for E&P assets is at best moderate. Then there are the banks, which used to have a soft spot for energy companies when oil was selling for over $100 a barrel. Now that it is hovering around $30, the soft spot is gone and lenders are trimming their energy investment portfolios. Related: Electric Car War Sends Lithium Prices Sky High

Private equity firms are one alternative source of finance for the troubled industry players. Deep capex cuts are another. The efficiency of both options, however, is questionable. Banks, the IEA, and the IMF have warned that oil prices could reach $20. Iran is back on the international market and planning to raise production to pre-sanction levels (around 4 million bpd in 2011.). The world’s number one and two producers, Russia and Saudi Arabia, have made a deal to freeze output at current levels, but these levels are record-highs for both countries, so a freeze is unlikely to take care of the glut quickly enough. And it’s not going to happen anyway.

All this spells doom for that unfortunate one-third of producers. There is one alternative to bankruptcy—sector consolidation—although the problems with consolidation are similar to the problems with asset sales. Few energy companies are in a position to make acquisitions right now.

What’s left? Continuing the optimization of everyday operations. Operating efficiencies are constantly being improved, mainly in the shale patch but also outside it. Costs for 95 percent of U.S. output have fallen below $15 a barrel, says Deloitte. It seems all that is left for the troubled E&Ps is to continue pumping and keep hoping the storm will eventually subside. Not a fascinating prospect, by all means, but the most realistic one.

By Irina Slav of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • John Scior on February 24 2016 said:
    It is a part of a free market economy that new companies will enter when they see an opportunity to make money. The flip side of this coin is that when economic conditions change, there will be consolidation or departure from the marketplace. As much as this causes turmoil in the economy and in individual lives, it is part of the capitalist economy that brings to us all the wonderful consumer products we have all come to embrace.

Leave a comment




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