Houston: The rout in crude prices is snowballing into one of the biggest avalanches in the history of corporate America, with 59 oil and gas companies now bankrupt after this week’s filings for creditor protection by Midstates Petroleum and Ultra Petroleum.
The number of US energy bankruptcies is closing in on the staggering 68 filings seen during the depths of the telecom bust of 2002 and 2003, according to Reuters data, the law firm Haynes & Boone and bankruptcydata.com.
Charles Gibbs, a restructuring partner at Akin Gump in Texas, said the US oil industry is not even halfway through its wave of bankruptcies. “I think we’ll see more filings in the second quarter than in the first quarter,” he said. Fifteen oil and gas companies filed for bankruptcy in the first quarter.
Some oil producers appear to be holding on, ho-ping the price of crude stabilizes at a higher level. In February, oil slumped as low as $27 a barrel from peaks above $100 a barrel nearly two years ago. American shale oil companies are facing the brunt of low oil prices — a result of oversupply caused by US oil production and Saudi Arabia’s refusal to allow Opec to cut down its supply to maintain oil price at a decent levels.
Saudi Arabia, whose cost of oil extraction is the lowest at around less than $10 a barrel, was speculated to have increased its production despite the supply glut as it wanted to force US shale oil companies to force out of business. US shale oil companies typically break-even around $50-$70 a barrel and the current price of $45 a barrel would make them bankrupt.
A widely predicted wave of mergers in the shale space has yet to materialize as oil price volatility makes valuations difficult, and buyers balk at taking on debt loads until target companies exit bankruptcy.
Until recently, banks had been willing to offer leeway to borrowers in the shale sector, but lately some lenders have tightened their purse strings — a development which shows that Saudi’s strategy is pay off.
A 60 percent slide in oil prices since mid-2014 erased as much as $1.02 trillion from the valuations of US energy companies, according to the Dow Jones US Oil and Gas Index, which tracks about 80 stocks.
This has already surpassed the $882.5 billion peak-to-trough loss in market capitalization from the Dow Jones US telecommunications sector Index in the early 2000s.
