The oil and gas sector is currently enjoying a mini-boom cycle as economies gradually reopen and demand for oil begins to return to a semblance of normality. Oil markets are in an optimistic mood again, with oil futures trading sharply on Wednesday after the US government reported a third weekly drop in weekly stocks, while the International Energy Agency (IEA) strong oil report for 2021. After falling by 8.7 mb / d last year, the IEA expects world oil demand to expand by 5.7 mb / d to 96.7 mb / d in 2021.
For many U.S. shale producers, however, there is still little to cheer about, with record numbers filing Chapter 11 bankruptcy protection.
According to the law firm for energy and restructuring Haynes and Boone, Bankruptcies of North American Oil Producers climbed to the highest level in the first quarter since 2016 as energy companies continue to struggle to recover from the carnage of the 2020 oil price crash.
Haynes and Boone reported there were eight bankruptcies by North American oil and gas producers in the first quarter of 2021, the second highest figure for a first quarter since 17 for the first quarter of 2016, the last time U.S. crude futures fell below $ 30 a barrel. over the past decade.
Crude prices fell from last year’s lows, with WTI trading at about $ 63 a barrel on Friday, while Brent changed from $ 67 a barrel.
Related: Demand for oil could reach by 2026: Goldman Sachs
Source: Haynes and Boone
Small businesses in trouble
The big difference this time around is that smaller producers appear to be the biggest victims, with only $ 1.8 billion in total debt for the quarter, the second lowest Q1 total after $ 1.6 billion in the first quarter of 2019.
Consider that US energy companies that filed for bankruptcy had total debt of $ 53 billion last year, the second highest total since 2016 when the debt amounted to $ 56.8 billion.
As expected, Texas is still well represented, with half of the bankruptcies coming from the region.
HighPoint Resources Corp. (NYSE: HPR) was the largest debtor filed, with $ 905 million in secured and unsecured debt.
Apart from oil and gas producers, a total of five oilfield service companies also filed for bankruptcy with foreign drills Seadrill Ltd (OTCQX: SDRL) accounts for the bulk of the sector’s debt of $ 7.2 billion.
Bending point
Fortunately, many producers and oilfield service companies have reached a turning point, with the prospect of energy demand significantly better than a few months ago.
Last week, the IEA issued a strong oil report for 2021 whereby global oil demand was revised at 230,000 b / d to 96.7 mb / d in 2021, good for an increase of 5.7 mb / d from 2020 levels. The energy watchdog has based the upgrade on encouraging economic indicators, though it says the recovery is still fragile due to the rising cases of Covid-19 in key consumer regions.
In its April update of the World Economic Outlook, the IMF increased its forecast for global GDP growth for 2021 and 2022 to + 6% and + 4.4% respectively.
The United States has received the biggest upgrade thanks to its fast vaccination and large stimulus packages. The United States has so far launched the world’s fastest deployment of vaccines as per Bloomberg, which puts him in a good position for the full reopening of the economy. The latest vaccination rate is 3 053 566 doses per day, which means that it can cover 75% of the population, or the so-called herd immunity number, in just three months.
The IEA says that the biggest demand growth will take place in the last half of the current year, with strong demand growth requiring another 2 mb / d extra crude oil to supply the markets well.
Meanwhile, JP Morgan has estimated that the oil rigs of Permian’s Delaware Basin now need oil prices of just ~ $ 33 per GDP to break down from $ 40 / BBL in 2019. JPM says most U.S. land operators are economical at the current oil price, and many operators are will even increase activity in H2 and build a solid momentum for higher volumes in 2022.
Hopefully the documents of Chapter 11 will get away from here soon.
By Alex Kimani for Oilprice.com
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