US shale companies could be forced to write down $3oobn of their assets this year, starting in the second quarter, as operators begin to account for the oil­ price collapse on their balance sheets, according to a new study. The huge impairments – about half the net value of the companies’ property, plant, and equipment – would increase the sector’s leverage from 40 percent to 54 percent, triggering insolvencies and restructuring, says the study by Deloitte, accountancy.

“As Covid-19 impacts amplify pressures on shale companies through 2020, a wave of impairments may prompt the deepest consolidation the industry has ever seen over the next six to 12 months,” said Duane Dickson, vice-chairman of Deloitte’s US oil and gas business.

The writedowns, based on an oil price of $35 a barrel, would be another blow to a sector that has been hammered by the worst oil-price crash in decades. US crude output has plummeted as operators shut wells, idle rigs and sack oilfield workers. Rystad Energy, a consultancy, calculated that shale producers’ impairments in the first quarter were about $38bn. By the end of May, 18 exploration and production companies had declared bankruptcy this year, according to Haynes and Boone, a law firm. Denver­ based Extraction Oil & Gas recently joined the list. Chesapeake Energy, an early shale pioneer, is likely to follow soon.

Bakken pain reflects long road back for US shale At a US oil price of $35 a barrel, almost a third of shale producers are insolvent, reckons Deloitte – unable to meet longer­ term liabilities from free cash flow.

The US oil benchmark was trading at about $40 on Friday but has averaged less than $27 this quarter. In April, it briefly traded below zero, sending shockwaves through a shale patch that, on average, needs about $45 to turn a profit. Consolidation is likely. But Deloitte thinks only 27 per cent of shale companies would offer enough value for buyers. And only large independents or supermajors such as Chevron and ExxonMobil still have the financial strength to make acquisitions.