Bankruptcy: Trying to Stay Above the Waves

Bankruptcy: Trying to Stay Above the Waves
Lifesaver launched a drowning man in the sea

The oil and gas industry has not seen this number of bankruptcies since the bottom of the last bust back in 2016. For contrast on how the pandemic has affected numbers, only five companies filed for bankruptcy in the first quarter of 2020. Eighteen have filed in the second quarter. Here are just a few who filed:

  • Chesapeake Energy
  • Ultra Petroleum
  • Unit Corporation
  • Whiting Petroleum
  • Echo Energy Partners
  • Skylar Exploration
  • Diamond Offshore
  • Freedom Oil and Gas
  • Templar Energy

Chesapeake Energy was one of the pioneers of hydraulic fracturing, the process that gave us the shale boom and catapulted the United States to energy independence. But like most of the oil and gas companies filing for bankruptcy, they were carrying a heavy load of debt. The pandemic wave pushed them under, and they were unable to regain their footing during the global lockdowns.

Bankruptcy filings to continue

Analysis by Haynes and Boone implies it isn’t over yet. Kraig Grahmann chair of the energy and finance practice at Haynes and Boone said, “We definitely expect it to keep picking up over the course of the year.”

This prediction seems likely to be fulfilled. While fossil fuel demand grew when states and countries around the world started getting back to business, threats of a second wave of virus-related lockdowns are never far away. Just this week, Governor Newsom of California ordered all non-essential, indoor businesses to close. Although the percentage of COVID-19 caused deaths remains very low, the increase in testing results in higher numbers of positive cases in places like Texas and Florida. These numbers and a renewed lockdown across the country could once again stomp out fossil fuel demand. 

OPEC+ decision this week

Oil prices have been hovering near $40 a barrel prices for weeks now. There were hopes and predictions prices would finish the year stronger than expected, but the price seems to be waiting, like the rest of us, to see what is going to happen around the country before moving either way. It doesn’t help that OPEC+ is planning a meeting this week to decide if they should continue oil production cuts after July. Rumor has it right now that they are planning to increase their member-country’s quotas next month. 

As of May 31, there are still roughly 225 oil and gas bankruptcy cases pending across the United States. Even if we see the best-case scenario, for oil and gas companies that have been carrying debt or struggling, it will most likely be too little, too late.