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Wednesday, November 25, 2020

North American oil and gas bankruptcy debt to blow past US$100 billion

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The impact of the coronavirus pandemic continues to take its toll on the global oil and gas industry with North America being particularly hard it. Mounting bankruptcies will see associated debt running into billions of dollars surpassing the previous 2016 all-time high.

Although the combined count of Chapter 11 filings from exploration and production firms (E&Ps) and oilfield service (OFS) companies this year in North America has so far reached 84, which is still lower than the historical high of 142 in 2016, Rystad Energy said the associated debt these companies are carrying is much higher, at $89 billion so far, some $19 billion more than in 2016.

Under the current price environment Rystad Energy projects that more bankruptcies will follow this year, adding to the cumulative associated debt and boosting it to a staggering figure of over $100 billion.

“Assuming a WTI average of around $40 per barrel this year and a Henry Hub price of $3 per MMcf, we forecast North American E&P bankruptcies to rise to 55 by the end of the year, from 40 filings at the time of writing, adding about $15 billion of debt to the cumulative total,” Rystad Energy said. “And that excludes possible associated debt additions from new OFS company bankruptcies, which currently stand at 44 cases.”

Under this scenario, associated debt for these 55 E&P Chapter 11 filings this year is projected to reach $69 billion. Should these price levels persist in 2021, Rystad Energy expects 54 new E&P bankruptcies for the year, carrying an associated debt of about $44 billion. In a more pessimistic scenario that assumes a Henry Hub price of $2.5 per MMcf, E&P bankruptcies could climb to 61 cases this year and to 68 in 2021.

Rystad Energy said the current wave of bankruptcies is different, and it is hitting a significant number of larger companies in multiple business segments. In the first nine months of the year, the average Chapter 11 debt per company was at $1.05 billion, almost twice as much as the 2017 level of $576 million.

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