The number of US oil-producing companies filing for bankruptcy has exceeded 200 in the first quarter of 2020, and as billions of dollars in revenue have fallen amid low oil prices, thousands of workers have also lost their jobs.
Due to the novel coronavirus (COVID-19), crude oil prices last month hit their lowest level since 1999, taking a major toll on the US oil industry.
"Thousands had already lost their jobs before COVID-19 because the companies cut back their drilling programs significantly," Ed Hirs, an energy economist at the University of Houston, told Anadolu Agency.
"The oilfield service workers lost their jobs first. Now, the producers are cutting back on staff and fieldworkers," he added.
The number of oil rigs in the US, an indicator of short-term production in the country, plummeted to 258 for the week ending May 15, marking it the lowest level since July 2009, according to the latest data released by oilfield services company Baker Hughes.
While the number of US oil rigs has fallen for nine consecutive weeks, it is also down by 544, or 67.8%, from 802 during the same period a year ago.
"If we assume that one rig could drill 12 wells per year at $8 million per well, then the rig would generate $96 million per year of revenue. Extrapolating this, the loss of drilling revenue is more than $60 billion to the industry," Hirs explained.
He said the ripple effects from this across the economy will be devastating for the people living in the Permian basin, the Eagle Ford, and North Dakota, referring to the most prolific shale basins in the US.
Hirs stressed the decline in the US oil rig count means that between 20,000 and 70,000 workers have already lost their jobs in the US oil sector.
- $24 billion on the line
As for potential investment losses, Hirs said the estimated amount is already in the billions.
"It is difficult to forecast the amount of money that will be lost. But, just for Texas the lost GDP is more than $135 million per day and more than $24 billion if the oil price stays down in the $30s versus the $60/bbl [per barrel] it was on Jan. 1," he said.
And, it is even more difficult for oil producers to find loans in a low price environment, given that crude prices are down, global oil demand is very low, and quarantine measures are suppressing oil consumption all around the world.
"Many of the endangered companies had some amount of hedging in place to help them survive 12 to 18 months of a price collapse," Hirs said, but he warned, “the write-downs of asset values and the lack of new loans from banks and other lenders will spell the end for many companies.”
- Cumulative debt over $129 billion
The total number of bankruptcy filings in the North American oil sector has exceeded 200 in the first quarter of 2020, according to a report by Texas-based international corporate law firm Haynes and Boone.
The law firm has monitored the number of North American oil and gas producer bankruptcies since 2015. The firm said after the initial wave in the low oil price environment during 2015-2016, more than 100 bankruptcy filings were recorded.
Since January 2020, oil prices have fallen from $63 per barrel to below $20 per barrel during some days in March this year, the firm said, adding, "It is not clear at this point where oil prices will end up over the succeeding quarters, but the trend is clear. Lower for longer is the watchword for producers and their creditors."
"As of early April, there is reason to expect that, just like the COVID-19 virus in the US, it will get worse before it gets better," the firm said in its report.
For the five years up to April 1, 2020, the cumulative debt of oil-producing companies in the US reached more than $129 billion in aggregate, according to the report.
- 170 firms may file for bankruptcy in 2021
If the price of American benchmark West Texas Intermediate (WTI) remains low and averages around $30 per barrel this year, 170 more companies in the US oil and gas industry may file for bankruptcy in 2021, according to Norway-based Rystad Energy.
"US oil and gas operators, including producers of all sizes, amount to just above 9,000. The number might seem high, but most of these operators represent small, family-owned businesses operating a single-digit number of wells," the independent energy research company said in a report.
"The smaller operators are also the most vulnerable in this crisis, as they often don’t have the cash stack to navigate the downturn and if they shut their wells, they are not likely to ever restart them again," it added.
During the previous oil price crash from mid-2014 to 2016, when the price of Brent crude plummeted from $115 per barrel to below $30 a barrel, more than 250 oil firms in the US went bankrupt, nearly 300,000 workers lost their jobs and north of $250 billion in investments evaporated.
The US shale industry responded to the low price environment by lowering expenditures and introducing innovations such as cloud technology and artificial intelligence to more accurately and efficiently access reserves during the exploration stage.
This ultimately made the US the world's largest crude oil producer in November 2018 by surpassing Saudi Arabia and Russia.
The US' crude oil production climbed to a record high level of 13.1 million barrels per day (bpd) last month. This fell dramatically by 1.6 million bpd in the past two and a half months due to low prices and COVID-19 to 11.5 million bpd for the week ending May 15, according to the country's Energy Information Administration (EIA).
By Ovunc Kutlu