Bankruptcies are plaguing the once-mighty oil and gas industry of the US, as its cash-cow shale business plunges into the quagmire, based on latest findings by Wall Street analysts on Tuesday.
Major oil companies like Halcon Resources Corporation, Sanchez Energy Corp and more than two dozen others have already filed for bankruptcy in the last few months.
The number nearly matches the 28 bankruptcy filings last year and is seen to increase as their timetable to settle debts narrows, Oilprice.com disclosed.
With default looming for almost 6 percent of all energy firms with junk-classified bonds, the biggest figure since 2017, the companies total incurred debts amount to almost $11 billion. This is perceived as a "key indicator of the industry's financial dilemma," analysts said.
The stress for the beleaguered oil firms keeps growing, as they struggle to cushion debt, find new ways to earn and refinance existing financial burdens.
The once-thriving shale industry has been under strict monitoring by Wall Street observers in the last 18 months, adding more pressure for the companies as investor interest continues to fade following years of dismal profits due to failure to meet the cost of capital with oil prices dropping $60 per barrel.
Haynes and Boone LLC recorded a rise in the number of bankrupt companies middle of this year, after a (minus) 23 percent correction in WTI prices from April to June. The oil firm said that for last year alone, 28 exploration and production companies reported more than $13 billion in debt.
Small-scale drilling contractors and private consortiums have been the most battered in the market so far, and these companies generate a very large volume of shale and oil. Their struggles are very clear evidence of a wider problem affecting the entire American shale business.
For many of these companies, Halcon for instance, the bankruptcy filings highlight a recent episode in Chapter 11 of the 2015-2016 oil and gas collapse. Most of the producers ended up neck-deep in debt after betting their profits on the perception that higher oil prices would keep them in operation.
The oil producers were able to survive in the business for a number of months, Patrick Hughes, an executive at Haynes & Boone, said. "But now their debts are just too high and they are now going to have to take their medicine," he added.
