Heavily indebted US upstream sector on track for record Chapter 11 filings

More than 70 US oil and gas operators are expected to be in trouble to meet interest payments

Shale, WTI, Rystad energy

Whiting Petroleum this week opened the door of Chapter 11 filings but will not be the only company to cross that threshold. As the US upstream industry is heavily indebted, the current price environment is likely to create the largest number of such filings in modern history in 2020, a Rystad Energy impact analysis shows, with more than 70 oil and gas operators expected to be in trouble to meet interest payments at an oil price of $30 per barrel of WTI crude.

As the Covid-19 pandemic and the global oil-price war continue to put pressure on oil prices, the number of Chapter 11 filings could further climb into triple digits with 150 to 200 cases in 2021 if a price level of $30 WTI persists.

In a $20 WTI environment, which is close to where we are right now, the number of Chapter 11 cases could reach 140 already this year, increasing to almost 400 in 2021. In such a scenario almost $250 billion of debt is seen at risk in 2020‒2021. To be exact, our estimates show $70 billion of debt being at risk in 2020 and another $177 billion in 2021.

“In our view we will need WTI prices of $40 to $45 per barrel to eliminate the upcoming explosion in the number of financially distressed US E&Ps, while the most efficient and least leveraged players will still be able to survive with oil prices below $20 per barrel WTI,“ says Rystad Energy’s Head of Shale Research Artem Abramov.

Whiting Petroleum this week opened the door of Chapter 11 filings but will not be the only company to cross that threshold. As the US upstream industry is heavily indebted, the current price environment is likely to create the largest number of such filings in modern history in 2020, a Rystad Energy impact analysis shows, with more than 70 oil and gas operators expected to be in trouble to meet interest payments at an oil price of $30 per barrel of WTI crude.

As the Covid-19 pandemic and the global oil-price war continue to put pressure on oil prices, the number of Chapter 11 filings could further climb into triple digits with 150 to 200 cases in 2021 if a price level of $30 WTI persists.

In a $20 WTI environment, which is close to where we are right now, the number of Chapter 11 cases could reach 140 already this year, increasing to almost 400 in 2021. In such a scenario almost $250 billion of debt is seen at risk in 2020‒2021. To be exact, our estimates show $70 billion of debt being at risk in 2020 and another $177 billion in 2021.

“In our view we will need WTI prices of $40 to $45 per barrel to eliminate the upcoming explosion in the number of financially distressed US E&Ps, while the most efficient and least leveraged players will still be able to survive with oil prices below $20 per barrel WTI,“ says Rystad Energy’s Head of Shale Research Artem Abramov.

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