The oil and gas sector is currently experiencing a mini-boom cycle, as economies gradually reopen and oil demand begins to return to a normal appearance. Oil markets are once again in an optimistic mood, with oil futures trading rising sharply on Wednesday after the US government reported a third weekly drop in weekly stocks, while the International Energy Agency (IEA) issued oil report for 2021. After falling from 8.7 mb / day last year, the AIE now expects global oil demand to expand by 5.7 mb / day in 2021 to 96.7 mb / day.
However, for many US shale producers, there is still little to cheer about, with record numbers filing for Chapter 11 bankruptcy protection.
According to energy and restructuring law firm Haynes and Boone, bankruptcies of North American oil producers rose to its highest level in the first quarter of 2016, as energy companies continue to fight to recover from the 2020 oil price collapse massacre.
Haynes and Boone reported that there were eight bankruptcies of North American 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 time the US gross future fell below $ 30 a barrel in the last decade.
Crude oil prices returned from last year’s lows, with WTI trading at around $ 63 a barrel on Friday, while Brent changed hands at $ 67 a barrel.
Connected: Oil demand could peak by 2026: Goldman Sachs
Source: Haynes and Boone
Small firms in difficulty
The big difference this time is that smaller producers appear to be the main victims, with only $ 1.8 billion in aggregate debt for that quarter, the second lowest total in the first quarter, after $ 1.6 billion in the first quarter. quarter of 2019.
For a particular perspective, consider the fact that last year the US energy companies that filed for bankruptcy had accumulated debts of $ 53 billion, the second largest total in 2016, when the debts totaled $ 56.8 billion.
As expected, Texas continues to be well represented, with half of those who filed for bankruptcy coming from that region.
HighPoint Resources Corp. (NYSE: HPR) was the largest debt holder on record, with $ 905 million in secured and unsecured debt.
In addition to oil and gas producers, a total of five oil service companies went bankrupt with offshore drilling. Seadrill Ltd. (OTCQX: SDRL) accounting for most of the sector’s $ 7.2 billion debt.
Inflection point
Fortunately, many producers and service companies for the oil industry have reached a turning point, the outlook for energy demand has improved considerably compared to just a few months ago.
Last week, the AIE issued a oil report compiled for 2021 revising global oil demand in 2021 by 230,000 b / day to 96.7 mb / day, an increase of 5.7 mb / day 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 key consumer regions.
For example, in its April update of The world economic outlook, The IMF raised its forecast for global GDP growth for 2021 and 2022 to + 6% and + 4.4%, respectively.
The United States has received the largest upgrade due to the rapid launch of vaccines and strong incentive packages. The United States has so far unveiled the fastest vaccine launch in the world, according to the rules Bloomberg, placing itself in a good position for a complete reopening of the economy. The latest vaccination rate is 3,053,566 doses per day, which means it could cover 75% of the population, or the so-called immunity number of the herd, in just three months.
The IEA says the biggest increase in demand will come in the second half of this year, with strong demand growth requiring an additional 2 mb / day of crude to keep markets well supplied.
Meanwhile, JP Morgan has estimated that oil drilling in the Delaware Basin in Permian now requires oil prices of only ~ 33 USD / bbl to drop from $ 40 / bbl in 2019. JPM says most US ground operators are economical at current oil prices, and many operators are likely to even increase activity in H2 and create a solid boost for higher volumes in 2022.
We hope that those Chapter 11 deposits will be withdrawn quickly from here.
By Alex Kimani for Oilprice.com
More top readings from Oilprice.com: