Bankruptcies batter oil and gas industry

107 firms sought Chapter 11 protection in 2020, the highest number since the last downturn

More than 100 oil and gas companies declared bankruptcy in 2020 after the coronavirus pandemic plunged the energy sector into the worst downturn in a generation.

Forty-six exploration and production companies and 61 oil field services companies sought Chapter 11 bankruptcy protection last year, according to Dallas law firm Haynes and Boone. The 107 industry bankruptcies last year were the most since 142 were filed in 2016, at the end of a twoyear downturn.

“Since 2015, more than 500 bankruptcies have been filed in the North American oil and gas industry,” Haynes and Boone said in its latest report on the court filings published this month. “In hindsight, 2020 stands out over this dismal period for the industry setting a number of records.”

Most oil and gas companies have struggled during the pandemic, which slashed global demand for petroleum products such as gasoline and jet fuel. Unlike in previous downturns, oil and gas companies were already under increased financial pressure after many investors pulled out of the sector in 2018 after years of poor returns. Several energy companies said they were forced to file for bankruptcy after lenders pulled credit lines.

More than a fifth of the bankruptcies last year — 14 exploration and production companies and nine oil field services companies — took more than $1 billion of debt to court. Multibillion-dollar bankruptcy cases were filed by Chesapeake Energy ($11.8 billion), Diamond Offshore Drilling ($11.8 billion) and California Resources ($6.3 billion). Ultra Petroleum filed for its second bankruptcy in five years, taking

$5.6 billion to court in 2020.

During 2020, more than $98 billion in debt was taken to court, compared with $70.3 billion during the previous oil bust, Haynes and Boone said.

The mounting bankruptcies are expected to reduce U.S. shale oil production by about 200,000 barrels, or 25 percent, by the end of 2021, according to an analysis by Norwegian energy research firm Rystad.

Exploration and production companies that filed for bankruptcy protection in 2019 and 2020 pump about 800,000 barrels per day, Rystad said. That output will decline to 600,000 barrels per day by late 2021, as those companies contend with limited capital budgets.

“Chapter 11 filings affect the whole industry,” Artem Abramov, head of shale research at Rystad Energy, said in a statement.