Bankruptcies among U.S. and Canadian oil companies last year rose by 50 percent and could continue rising this year, Haynes and Boon said as quoted by Reuters.
“There’s going to be a hatchet taken to these companies in the next year,” Kilduff said. “There will be bankruptcies and consolidation. The party is over.”
Shareholders have been getting impatient with oil companies, demanding higher returns and less of a focus on production expansion. As a result of this impatience, oil stocks have suffered one of their worst years in 2019 and the pain will likely continue this year as well, according to Haynes and Boon. The law firm, however, believes the reason for the bankruptcies is the 2014 price crisis, whose effects, they said, are still being felt.
Yet, one might argue that U.S. oil companies, at least, are digging their own grave by producing ever more oil. This record production has become the number-one factor moving oil prices or, as it happens, keeping them stable despite geopolitical risk spikes and production outages elsewhere.
As Haynes and Boon partner Buddy lark put it to Reuters, “That’s why you can bomb a major oil facility in Saudi Arabia or kill an Iranian general or shut in all Libyan oil production and prices don’t move.”
Yet prices are stable at a level where many U.S. shale producers can’t sustain their business, especially now that banks are becoming warier of providing more debt financing to the industry. And the reason banks are warier is that wells appear to be underperforming drillers’ own production estimates.
In Canada, the industry is also struggling with falling investor confidence caused by complex and non-industry friendly regulation and a pipeline shortage that is stumping growth in oil production.
By Irina Slav for Oilprice.com
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