Oil closes in on $40, but woes aren’t over
Number of working rigs hits new low; bankruptcy filings have escalated
Oil neared $40 a barrel Friday, but the shakeout in the industry continued as the U.S. rig count fell to a new low and energy company bankruptcies jumped.
The number of operating drilling rigs plunged below 300 for the first time as companies pulled an additional 17 rigs from the field, bringing the count to 284, according to Baker Hughes, a Houston oil field services company that has tracked drilling activity since 1987. At the worst of the 2014-16 oil bust, 404 rigs were operating.
Meanwhile, 14 oil and gas companies filed for bankruptcy in April and May, compared with five during the first three months of the year, law
ed.
Oil prices have rallied in recent weeks as businesses have reopened and consumers have left the house after government-ordered shutdowns and social distancing measures eased. Over the past few days, moves by OPEC and its allies to extend their deep production cuts have added to crude’s gains.
Oil settled at $39.55 a barrel in New York on Friday, the highest close in three months and a dramatic turnaround from late
April, when prices went negative for the first time in history.
The rally in oil prices also has been aided by the sharp decline in U.S. production, which has plummeted by nearly 2 million barrels a day since the middle of March, when it peaked at 13.1 million barrels a day. Last week, output averaged 11.2 million barrels a day, the Energy Department said.
The number of rigs in operation has plunged more than 60 percent since mid-March and by more than 70 percent when compared with a year ago, when there were 975 rigs in operation. Energy companies are shutting down existing rigs and halting drilling of new wells.
U.S. crude production is projected to average 11.7 million barrels per day in 2020 and 10.9 million per day in 2021, down from an average of 12.2 million a day in 2019, according to the Energy Department.
Despite the recent increases, oil prices still aren’t yet high enough to keep many companies solvent, according to Haynes and Boone.
Crude under $40 is “not a sufficient clearing price for many heavily (indebted) shale producers,” the report read. “It is reasonable to expect that a substantial number of producers will continue to seek protection from creditors in bankruptcy even if oil prices recover over the next few months.”
Among the 14 companies that have filed over the past two months are Houston-based businesses Diamond Offshore, Yuma Energy, Victerra Energy, Freedom Oil and Gas and Gavilan Resources.
Ten companies have filed for bankruptcy in federal courts in Texas since April, more than any other state in the country.