The oil and gas sector is currently experiencing a mini-boom cycle as economies gradually reopen and demand for oil begins to return to a semblance of normalcy. Oil markets are in a bullish mood again, with oil futures trading sharply higher on Wednesday after the U.S. government reported a third weekly drop in weekly stocks while the International Energy Agency (IEA ) posted a bullish oil report for 2021. After falling 8.7 mb / d last year, the IEA now expects global oil demand to increase by 5.7 mb / d in 2021 to 96.7 mb / d.
For many U.S. shale producers, however, there is still little cause for celebration, with a record number of requests for Chapter 11 bankruptcy protection.
According to the energy and restructuring law firm Haynes and Boone, bankruptcies of North American oil producers climbed to a first quarter high since 2016 as energy companies continue to struggle to recover from the carnage of falling oil prices in 2020.
Haynes and Boone reported that there were eight North American oil and gas producer bankruptcies in the first quarter of 2021, the second highest figure for a first quarter since 17 were reported for the first quarter of 2016, the last time US crude futures fell below $ 30 a barrel. during the last decade.
Crude prices rebounded from the previous year’s lows, with WTI trading around $ 63 per barrel on Friday while Brent changed hands at $ 67 per barrel.
Related: Oil Demand Could Peak By 2026: Goldman Sachs
Source: Haynes and Boone
Small businesses in difficulty
The big difference this time around is that small producers seem to be the main victims, with just $ 1.8 billion in total debt for the quarter, the second lowest total in the first quarter after $ 1.6 billion in the first. quarter of 2019.
For some perspective, consider that last year, U.S. energy companies that filed for bankruptcy held $ 53 billion in aggregate debt, the second-highest total since 2016, while debt stood at 56.8 billion. billions of dollars.
As expected, Texas remains well represented, with half of the bankruptcy filers coming from this region.
HighPoint Resources Corp. (NYSE: HPR) was the largest debt holder to file, with $ 905 million in secured and unsecured debt.
In addition to oil and gas producers, a total of five oil service companies have also filed for bankruptcy, with one offshore driller Seadrill Ltd (OTCQX: SDRL) accounting for the bulk of the industry’s $ 7.2 billion debt.
Fortunately, many producers and oilfield service companies have reached an inflection point, the outlook for energy demand has improved significantly compared to just a few months ago.
Last week, the IEA released a bullish oil report for 2021 whereby it revised upward global oil demand in 2021 from 230,000 b / d to 96.7 mb / d, which is good for a 5.7 mb / d increase from 2020 levels. Energy watchdog has based the upgrade on encouraging economic indicators, although it says the recovery remains fragile due to the surge in Covid-19 cases in key consumer regions.
For example, in its April update of World Economic Outlook, the IMF has raised its forecast for global GDP growth for 2021 and 2022 to + 6% and + 4.4%, respectively.
The United States has received the biggest upgrade thanks to its rapid vaccine rollout and significant stimulus programs. The United States has so far unveiled the world’s fastest vaccine deployment according to Bloomberg, placing itself in a good position for a complete reopening of the economy. The latest vaccination rate stands at 3,053,566 doses per day, which means it could cover 75% of the population, or the so-called herd immunity number, in just three months.
The IEA says the strongest growth in demand will occur in the second half of the current year with strong growth in demand requiring an additional 2 mb / d of additional crude to keep markets well supplied.
Meanwhile, JP Morgan estimated that oil drillers in the Permian Delaware Basin now need oil prices of just ~ $ 33 / bbl to drop from $ 40 / bbl in 2019. JPM says most onshore operators Americans are economical at current oil prices, and many operators are. even likely to accelerate activity in H2 and create solid momentum for higher volumes in 2022.
Hopefully those Chapter 11 repositories will be gone quickly from here.
By Alex Kimani for Oil chauffage
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