2019 Oil and Gas Bankruptcies Paint Bleak Outlook

Haynes and Boone reported that 50 energy companies filed for bankruptcy in the first nine months of 2019, including 33 oil and gas producers.

Rekha Khandelwal, CFA - Author

Dec. 4 2019, Updated 4:16 p.m. ET

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According to the law firm Haynes and Boone, 50 energy companies filed for bankruptcy in the first nine months of 2019. These include 33 oil and gas producers, 15 oilfield services companies, and two midstream companies.

The number of oil and gas bankruptcies in the first nine months of 2019 is already higher than in all of 2018. The firm noted that 43 oil and gas companies, including 28 producers, filed for bankruptcy in 2018.

A rise in the number of oil and gas bankruptcies in 2019 is concerning, particularly because bankruptcies had peaked in 2016 and were on a downtrend in 2017 and 2018.

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Top oil and gas bankruptcies in 2019

The prominent upstream bankruptcies in 2019 included Legacy Reserves and Sanchez Energy. More recently, EP Energy filed for bankruptcy in October.

On the other hand, Weatherford International was the top oilfield service bankruptcy during the year. The midstream energy segment felt comparatively less heat during the energy price turmoil. In 2019, only two midstream companies—Southcross Energy Partners and Cobra Pipeline—went bankrupt.

Are crude oil prices to be blamed?

Several factors contributed to the numerous oil and gas bankruptcies starting in 2014. One of the top factors was the slide in crude oil prices.

After the steep fall at the end of 2014, crude oil prices were on an uptrend for the most part from 2016 to 2018. However, oil prices fell sharply again toward the end of 2018.

WTI (West Texas Intermediate) crude oil price has averaged approximately $56.70 per barrel so far in 2019. That’s roughly 13% lower compared to an average price of $65.20 per barrel in 2018. This could be a factor contributing to the increased bankruptcies in 2019.

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Huge debt levels and bankruptcies

Energy companies, including producers, midstream, and oilfield services, made huge investments using debt after the oil price boom at the turn of the century. After the precipitous fall in oil prices, the companies found it difficult to maintain profitability. At the same time, a huge debt burden made it difficult for many producers to survive. Oilfield services, which directly support oil and gas production, also felt the heat.

Midstream companies were in a relatively better position because their operations are not directly dependent on oil prices. Still, they also suffered serious losses, resulting in several dividend cuts and restructurings. Notable among them was Kinder Morgan (KMI).

Similarly, large integrated oil and gas companies with diverse operations were in a better position to avoid bankruptcy. These include ExxonMobil (XOM), Royal Dutch Shell (RDS.A), and Chevron (CVX).

Is the outlook bleak for oil and gas companies?

Several energy companies have managed to sail through the oil price turmoil and have sustained in the lower price environment. However, oil and gas bankruptcies may rise if oil prices fall further. Overall, energy stocks aren’t getting much favor from investors in the absence of any major near-term catalyst. Finally, a recession, if it comes, may set oil prices on a downward spiral.

Learn more about factors driving energy sector stocks in The US Energy Sector: An Overview. For more on crude oil, please read The World’s Top Oil-Producing Countries and Which Country Has the Most Oil?


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