Wave Bankruptcies to Hit US Shale Industry

The US shale industry is about to enter a period of “great compression” as low oil prices hammer the sector, according to a Deloitte study released Wednesday.
The firm believes that exploration and production companies could write down the value of their assets by as much as $300 billion as they struggle to breakeven in a lower-for-longer oil price environment. Significant impairments are expected in the second quarter, CNBC reported.
Based on this, the firm envisions a wave of bankruptcies followed by mass consolidation.
“The oil industry is currently experiencing a ‘great compression’ in which companies’ room to maneuver is restricted by low commodity prices, reduced demand, capital constraints, debt loads, and health impacts of Covid-19,” the report said.
“Unlike in previous downturns, these effects are now simultaneous—creating a higher level risk of technical insolvencies and building intense pressure on the industry.”
The coronavirus pandemic sent oil prices tumbling in March and April as billions of people around the world stayed home in an effort to slow the spread of the virus. By some estimates, global fuel demand dropped by a third as businesses shut their doors, cars remained parked and airplanes stayed grounded.
At one point in April, West Texas Intermediate crude plunged into negative territory for the first time as demand remained depressed and oil storage quickly filled.