Energy firms remain at risk

Bankruptcies could eclipse total caused by oil bust of 2014-16

More than 240 energy companies may be forced into bankruptcy during the next two years if oil prices remain low, eclipsing the number of bankruptcies seen during the last oil bust.

Some 73 energy companies are at risk of filing for Chapter 11 bankruptcy this year if the price of crude hovers around $30 a barrel, according to an analysis by Rystad Energy. If prices remain low, another 170 companies are expected to follow suit in 2021, the Norwegian energy research firm said.

“The COVID-19 pandemic and the price crisis it has brought upon the oil and gas sector have hit the profitability of exploration and production companies hard,” the Rystad report says. “Despite the recent relative oil price recovery, dozens of U.S. operators are still threatened by bankruptcies even at a West Texas Intermediate oil price of $30 per barrel.”

The price of WTI rose by 1.3 percent Thursday to settle at $33.92, a month after it had plunged to minus $37.

If Rystad’s forecast holds true, the number of energy bankruptcies during the next two years will surpass the number of bankruptcies seen in the years after the 2014-16 oil crash. Some 215 energy companies with a combined $129 billion in debt filed for bankruptcy in the five-year period ending April 1, according to Dallas-based law firm Haynes Boone. There were 42 energy bankruptcies in 2019.

Several energy companies have already filed for bankruptcy in the wake of the coronavirus pandemic, including Whiting Petroleum, Skylar Exploration, Diamond Offshore, Freedom Oil & Gas and Gavilan Resources. The pandemic, which has forced businesses to temporarily close and consumers to stay home, has crushed demand for crude oil and its products such as gasoline, diesel and

jet fuel, causing prices to plummet.

Hoping to weather the crisis, energy companies have slashed operating expenses, cut capital spending, suspended dividend payments and laid off an estimated 30,000 workers this year, according to company filings and state employment notices.

The moves have continued this week as Houstonbased National Oilwell Varco joined a slew of energy companies and announced plans to stop paying its 5 cent dividend, a move CEO Clay Williams said was “in the best long-term interest of NOV’s shareholders.” The move is expected to save the oilfield service company about $77 million a year, according to an analysis from Houston investment advisory firm Tudor, Pickering, Holt & Co.

Meanwhile, Royal Dutch Shell, based in The Hague, is offering voluntary buyouts to employees, and is scaling back recruitment and reviewing the contracts of those working abroad. CEO Ben van Beurden said in an internal note to staff that some bonuses would be eliminated and that there should be low expectations for salary raises over the next year and a half.