U.S. Shale Oil Industry Bankruptcies Intensify

  • More US oil and gas producers are burdened with debts that cannot be repaid with such low oil prices.
  • Until economic activity fully resumes, and consumers are confident that the worst period of the epidemic has passed, demand levels will remain in a downturn.
  • Moderate and weak global economic growth, and the widening income gap in the United States during the epidemic, exacerbated this trend.

Eagle Ford producer Lonestar Resources filed for Chapter 11 bankruptcy protection this week, becoming the latest victim of a series of bankruptcies in the US shale oil industry this year. Lonestar Resources filed for relief under Chapter 11 in the US Bankruptcy Court in Southern Texas.

Lonestar Resources brings $500M bankruptcy to Houston court.

More and more US oil and gas producers (from small companies to giants) are burdened with debts that cannot be repaid with such low oil prices.

This week, Oasis Petroleum Inc also applied for Chapter 11 voluntary procedures, aimed at restructuring, which is expected to reduce debt by $1.8 billion.

The company said that Oasis Petroleum has sufficient liquidity to maintain operations, and is expected to stand out during the restructuring process in November 2020.

Dozens of shale producers have filed for bankruptcy protection this year, and Chapter 11 filings accelerated after oil prices plummeted in March and US shale producers cut production in the following months.

Well-known bankrupt companies include Permian producers Rosehill Resources, California Resources, and Denbury Resources. Shale giant Chesapeake Energy also filed for bankruptcy at the end of June.

According to data from Haynes and Boone Law Firm as of August 31, a total of 13 manufacturers have applied for protection in July and August. Together with the remaining applications this year, this represents an increase of 62% compared to the same period last year. Although it has not reached the level of 2016, this is a disturbing trend.

Haynes and Boone said that it is interesting that so far, the total amount of guaranteed debt involved in the bankruptcy of producers in 2020 has exceeded the total amount of guaranteed debt for all producer bankruptcies in 2016.

Until economic activity fully resumes, and consumers are confident that the worst period of the epidemic has passed, demand levels will remain in a downturn. The law firm said that maintaining lower prices for a longer period of time is still the consensus expectation of producers and their creditors.

Global Growth is Moderately Weak

Oasis Petroleum is a company engaged in hydrocarbon exploration and hydraulic fracturing in the Williston Basin as well as in the Delaware Basin of the Permian Basin in West Texas.

Moderate and weak global economic growth, and the widening income gap in the United States during the epidemic, exacerbated this trend.

A recent survey by National Public Radio (NPR) found that during the recession caused by the epidemic, low-income minority families in the United States suffered the most economic difficulties.

Research shows that compared with white families and other families with incomes of more than $100,000, most low-income minority families have wiped out their savings. This could get even worse for low income families as the $600 weekly unemployment assistance expires.

The well-known blog Zero Hedge stated that with the stagnant economic recovery and the deterioration of the labor market, most of the financial difficulties caused by the epidemic have been passed on to the low-income population.

On the one hand, wealthy borrowers locked in record low-interest rates, and mortgage origination in the second quarter reached a record $1.1 trillion, as the 30-year mortgage interest rate fell below 3% in July.

On the other hand, according to data from Black Knight Inc., the mortgage delinquency rate has risen 450% from the pre-pandemic level. At least in late July, about 2.25 million mortgage loans could not be repaid in time. This is due to the credit crisis.

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Benedict Kasigara

I have been working as a freelance editor/writer since 2006. My specialist subject is film and television having worked for over 10 years from 2005 during which time I was the editor of the BFI Film and Television.

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