Currently, the oil and gas sector is enjoying a mini-boom cycle, as economies reopen and oil demand begins to seem normal again. Oil markets are in an optimistic mood once again, and oil futures will be heavily traded on Wednesday after the U.S. government reported a weekly drop in weekly inventories, while the International Bureau of Investigation of Energy (AIE) bullish oil report for 2021. After declining 8.7 mb / d last year, the IEA expects global oil demand to increase by 5.7 mb / d in 2021 to 96.7 mb / d.
However, for many U.S. slate producers, there is still little to cheer for, with record numbers calling for Chapter 11 banking protection.
According to the law firm of Energy and Restructuring Haynes and Boone, bankruptcies of American oil producers rose to the highest level in the first quarter since 2016 as energy companies continue to struggle to recover from the 2020 oil price drop massacre.
Haynes and Boone reported eight failures by U.S. oil and gas producers in the first quarter of 2021, the second-highest figure in the first quarter since 17 were reported for the first quarter of 2016, the last once crude oil futures over the United States fell below $ 30 a barrel. during the last decade.
Crude oil prices have rebounded from last year’s lows, with WTI trading at around $ 63 a barrel on Friday, while Brent changes hands at $ 67 a barrel.
Related: Oil demand could reach 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 main victims, with only $ 1.8 billion in aggregate debt during the quarter, the second-lowest total in the first quarter after $ 1.6 billion in the first quarter of 2019.
For some perspective, keep in mind that last year U.S. power companies that filed for bankruptcy held $ 53 billion in aggregate debt, the second-highest total since 2016, when debt rose to $ 56.8 billion of dollars.
As expected, Texas remains well represented, with half of the bankruptcy plaintiffs coming from that region.
HighPoint Resources Corp. (NYSE: HPR) was the largest debt holder to file, with $ 905 million in secured and unsecured debt.
Apart from oil and gas producers, a total of five oil field service companies also filed for bankruptcy with a marine drill Seadrill Ltd. (OTCQX: SDRL) which accounts for most of the sector’s $ 7.2 billion debt.
Turning point
Fortunately, many oil field producers and service companies have reached a turning point, with a significantly improved energy demand outlook compared to a few months ago.
Last week, the IEA issued one bullish oil report for 2021 which revised global oil demand in 2021 by 230,000 b / d to 96.7 mb / d, an increase of 5.7 mb / d from 2020 levels. The energy watchdog has based the update on encouraging economic indicators, although it states that the recovery remains fragile due to the increase in Covid-19 cases in major consumer regions.
For example, in its April update of the Global economic outlook, the IMF raised its global GDP growth forecast for 2021 and 2022 to + 6% and + 4.4%, respectively.
The United States received the biggest improvement thanks to its rapid vaccine deployment and strong stimulus packages. To date, the United States has introduced the fastest vaccine launch in the world according to the standard Bloomberg, placing itself in a good position for a complete reopening of the economy. The latest vaccination rate stands at 3,053,566 daily doses, meaning it could cover 75% of the population, or the so-called herd immunity number, in just three months.
The IEA says the greatest growth in demand will come in the second half of the current year, with strong demand growth requiring an additional 2 mb / d of extra crude to keep markets well supplied.
Meanwhile, JP Morgan has estimated that oil drills in the Permian Delaware Basin now require oil prices of only $ 33 / bbl to unbalance from $ 40 / bbl in 2019. JPM says most The US is cheap at current oil prices, and many operators are even likely to increase activity in H2 and generate a solid boost for higher volumes in 2022.
Hopefully, these Chapter 11 requests will end quickly from here.
By Alex Kimani for Oilprice.com
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