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Wells Fargo has reassembled a team of bankers to handle defaulting oil and gas companies, Reuters reports, citing unnamed sources in the know. The credit resolution group, as the team is called, has worked before with bankruptcy specialists in oil ad gas, the sources added.
Warnings about a rise in bankruptcies have been coming in from energy experts for months, intensifying in recent weeks after West Texas Intermediate and other U.S. oil futures slipped into negative territory on April 20. Two companies have so far filed for bankruptcy protection since the start of the oil price slide in March: Whiting Petroleum and Diamond Offshore Drilling.
More are on the way as U.S. exploration and production companies struggle with the unprecedented combination of slumping demand and excessive supply while labouring under often heavy debt loads.
"These companies were in trouble before COVID-19 happened," Fitch Ratings senior director John Kempf told CNN. "After 2015 and 2016, they never really got their balance sheets back together. When stress came, they weren't prepared for it."
The ratings agency has warned that high-yield bond and leveraged loan defaults from the oil patch this year could reach $43 billion. Last month, Rystad Energy said that as many as 533 U.S. oil companies were at risk of going under.
Chesapeake Energy is among the top risks, CNN’s Matt Egan wrote, citing a Reuters report that said the company was preparing to file for bankruptcy protection. California Resources is another high-risk company, according to Fitch, as is Denbury Resources.
“It’s a bloodbath,” one Reuters source from banking circles said, commenting on Wells Fargo’s preparations for a flood of bankruptcies. A survey among oil companies conducted by the Federal Reserve Bank of Kansas City suggested as much as 40 percent could go under within 12 months, at WTI prices of $30. Currently, the U.S. benchmark is trading at $19.90 a barrel.
Wells Fargo, along with JP Morgan, is the largest lender to the oil and gas industry.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.