More than 240 U.S. oil and gas companies may be forced to file for bankruptcy protection during the next two years if oil prices remain low, a new report says.
Some 73 energy companies might have to file for Chapter 11 bankruptcy this year with the price of crude hovering around $30 a barrel. If prices remain low, another 170 companies are expected to follow in 2021, according to Rystad Energy, a Norwegian energy research firm.
If Rystad’s forecast holds true, the number of energy bankruptcies from the coronavirus-driven oil crash will eclipse that of the last bust, which claimed some 200 companies. Several energy companies have recently filed for bankruptcy, including Whiting Petroleum, Skylar Exploration, Diamond Offshore, Freedom Oil and Gas and Gavilan Resources. The coronavirus pandemic, which has forced businesses to temporarily close and consumers to stay home, has crushed demand for oil and gas products, causing prices to plummet.
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“The Covid-19 pandemic and the price crisis it has brought upon the oil and gas sector have hit the profitability of exploration and production (E&P) companies hard,” the Rystad report states. “Despite the recent relative oil price recovery, dozens of U.S. operators are still threatened by bankruptcies even at a West Texas Intermediate oil price of $30 per barrel.”
Rystad argues that government aid could help smaller operators avoid bankruptcies and help protect U.S. energy security. The research firm forecasts that almost 300,000 barrels per day of oil production is at risk of being deemed uneconomical in the current market.
“If these smaller players go bankrupt and their production is shut down, a lot more cash would be required to restart production by a potential new operator that picks up the lease,” Joachim Milling Gregersen, Rystad’s upstream analyst, said in a statement. “This would disincentivize operators from applying for these leases, resulting in an economically suboptimal result.“