The biggest independent shale oil groups in the US reported a record combined loss of $26bn in the first quarter as the sector braces itself for a wave of bankruptcies over the next two years. The collapse in crude demand brought about by the coronavirus pandemic forced more than $38bn in write-offs among top producers, according to analysis by Rystad Energy, sending net losses tumbling well below an average of $2.9bn in the past six years.
US energy groups have been caught in the eye of the storm as lockdowns aimed at stemming the spread of Covid-19 slashed energy demand and crashed the oil market. The sweeping impairments reported by the 39 publicly listed US shale oil producers analyzed by Rystad – which exclude majors and gas-focused companies – underline the pressure being faced by the industry as a result of the pandemic.
“The bottom line is there is going to be a wave of bankruptcies and restructurings,” said Regina Mayor, global head of energy at KPMG. Analysts predict 250 companies could go bust before the end of next year unless oil prices rise fast enough to start generating cash for producers wilting under punishing debt loads.
A recent rally has taken the price of West Texas Intermediate, the US marker, back above $30 a barrel, having traded in negative territory last month. But it remains down by half since January andwell beneath average break-even oil prices in the shale patch – leaving many more producers teetering on the brink of bankruptcy.
“I don’t think $30 oil saves a lot of those producers who are sitting in the emergency room on a gurney waiting on a heart transplant,” said Buddy Clark, a lawyer at Haynes & Boone in Houston, Texas. “There are more bankruptcies to come.”
Already 17 smaller US oil and gas producers, with total debt of around $14bn, have filed Chapter 11 bankruptcy this year, accordin! to data from Haynes & Boone.