E&P in North America, OFS bankruptcies slow in October, but more expected

Bankruptcies in the North American oil and gas industry slowed to a total of three in October, but more deposits are likely before year-end, according to the latest Oil Patch Bankruptcy Monitor monthly report released Tuesday by Haynes and Boone LLP.

“As the pace of bankruptcy filings for producers has slowed from last summer’s wave, the current base borrowing season for oil and gas borrowers may put additional pressure on some of the producers. already in financial difficulty, ”the law firm said. “Combined with the general lack of access to capital, additional deposits are likely before the end of 2020.”

The industry took a nasty step in October, registering its 250th filing for bankruptcy since Thanksgiving 2014, researchers at Haynes and Boone said.

The law firm has been monitoring exploration and production (E&P) bankruptcies since 2015, after the start of a global price drop in late 2014 from which the sector has not yet recovered.

“The total amount of secured and unsecured debt involved in the business of producers since 2015 exceeds $ 175 billion and the total amount of investor equity in these producers that has been wiped out represents several multiples of that amount,” said Researchers.

Covid-19 has only exacerbated the E&P sector’s “lower for longer” prognosis for prices this year. West Texas Intermediate (WTI) oil prices have remained stuck around $ 40 a barrel since mid-summer as governments struggle to contain the pandemic.

Report follows last Friday’s bankruptcy filing by heavyweight Utica Shale Gulfport Energy Corp. Despite shutting down production, cutting spending and selling non-core assets to reduce debt, the “legacy debt burden and legacy firm transportation commitments” created a balance sheet and cost structure ” unsustainable ”in today’s environment, said David Wood, CEO of Gulfport.

Other notable E&P that have filed for bankruptcy this year include Whiting Petroleum Corp., Chesapeake Energy Corp., California Resources Corp., Chaparral Energy Inc. and Oasis Petroleum Inc. Chaparral has since emerged of bankruptcy as a private company. The first nine months of this year saw 40 bankruptcy filings by producers, up from 33 in the same period last year.

The petroleum services segment (OFS), meanwhile, faces an equally difficult outlook, the researchers said.

“With continued reductions in producer capital budgets for drilling, completions and other field activities, oil service companies continue to bear the brunt of this impact,” the researchers said. “Many smaller or highly leveraged OFS companies may not be able to stand and avoid seeking bankruptcy court protection.”

Haynes and Boone followed 250 OFS bankruptcy filings from the start of 2015 until the end of October. The total amount of total debt administered in these bankruptcies exceeds $ 104 billion.

On average, about 10 OFS bankruptcies per month have been filed since July, and nine were added in October, according to the researchers.

The middle segment, meanwhile, “has not experienced the same level of distress that E&P or oil service companies experience,” the researchers said. Only 32 intermediary companies filed for bankruptcy between the start of 2015 and the end of 3Q2020.

However, the turbulence in “global markets affecting prices and demand, as well as the efforts of producers to avoid onerous intermediary contracts as they seek to restructure and come out of their own bankruptcies, will have an impact on all markets. facets of the intermediate sector.

“It is likely that a number of intermediary companies will have to seek bankruptcy court protection during the remainder of 2020.”

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