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Rise in US Oil Bankruptcies

Rise in US Oil BankruptciesRise in US Oil Bankruptcies

A year after Saudi Arabia decided to keep its oil wells running and let plunging prices correct a global oversupply, the number of bankruptcy cases among North American oil drillers has risen to 37.

And that figure could double next year if crude stays cheap, as at least as many oil companies appear to be on the precipice of running out of cash or are coming up on deadlines to pay off their debt, attorneys at Dallas-based Haynes & Boone said on Friday, Fuelfix reported.

The casualty count could end up growing larger than in the 2009 financial crisis, when the oil market crashed for a relatively short period and 60 US and Canadian drillers went bankrupt.

“It’s harder to withstand low prices for a long time,” said Buddy Clark, head of the energy practice group at Haynes & Boone, the law firm that tallied up this year’s bankruptcies.

Sixteen of the bankrupt companies were based in Texas. Most of them were small and did not play a central role in the nation’s energy surge over the last few years. But together they had $13 billion in debt.

Federal regulators have warned banks for months that oil companies could become riskier investments the longer oil prices stay low. The Office of Comptroller of the Currency said earlier this month the amount of oil-company bank debt that is considered substandard, doubtful or a loss has climbed fivefold over last year to $34.2 billion.

They blamed an aggressive industry runup in debt from 2010 to 2014 as companies bought property and drilled expensive horizontal wells to capitalize on a new resource, shale oil, which previously had been inaccessible.

It is “making many borrowers more susceptible to a protracted decline in commodity prices”, the OCC said.

Oil prices have collapsed since the Organization of Petroleum Exporting Countries met in Vienna last Thanksgiving and decided to keep their crude production levels steady despite a global oil glut.

Saudi Arabia and Iraq have boosted output while US shale plays have lost hundreds of thousands of barrels of production since April.

Swift Worldwide Resources estimates 233,000 oil-industry jobs have been swept away by the downturn. US crude, which reached a 2014 peak of more than $107 a barrel, traded for just a few cents over $40 in midday trading Friday on the New York Mercantile Exchange.

Financialtribune.com