US upstream industry faces bankruptcy crisis unless oil price improves, report says

Unless oil prices continue to strengthen some 150 more North American E&Ps will need to seek Chapter 11 protection by 2022, according to research by Rystad Energy. 

So far this year, according to the corporate law firm Haynes & Boone, 32 E&Ps have filed for Chapter 11, recording a cumulative debt of about $40 billion. On the oilfield services (OFS) front, 25 companies have filed for chapter 11. If the oil price remains at $40, Rystad Energy estimates 29 more E&P Chapter 11 filings this year, adding another $26 billion of debt at risk. 

In a scenario with WTI continuing to hover around $40 over the next two years, Rystad expects another 68 Chapter 11 filings from E&Ps in 2021, and 57 more in 2022, adding $58 billion and $44 billion, respectively, of more debt at risk. That would bring the total amount of E&P debt at risk from now until the end of 2022 to $128 billion. 

The number of filings so far is lower than what was recorded in the previous downturn, particularly in 2016, but total debt for the filings in the first seven months of the year, for both E&Ps and OFS players, is already at the same level as the full year of 2016, at $70 billion. Moreover, average debt per company in 2020 is $1.2 billion, 160% higher than the average debt of $460 million recorded in the 2015-2019 period and twice as much as the 2017 level, which was the second highest in terms of average debt in a year. 

‘While an improvement in oil prices towards $40 per barrel WTI saved a significant number of E&Ps and prevented early Chapter 11 filings in June-July, the current price environment is in no way sufficient for a large number of E&Ps in the medium-term. As hedging programmes set at WTI $50+ per barrel expire in the second half of this year, we anticipate greater financial pressure on the industry unless WTI prices recover further,’ said Artem Abramov, Rystad Energy’s head of shale research.