• Natural Gas News

    Dollar Value of Bankruptcies a Record in 2020: Rystad


Chapter 11 filings expected to fall sharply in 2021

by: Dale Lunan

Posted in:

Covid-19, Weekly Overviews, Market News, News By Country, Canada, United States

Dollar Value of Bankruptcies a Record in 2020: Rystad

The combined debt associated with Chapter 11 filings by North American upstream companies in 2020 reached a record $102bn, Norwegian consultancy Rystad Energy said in a January 25 note, but the pandemic-driven bankruptcy pace is already slowing as crude prices strengthen.

Last year was “arguably the most devastating year in history” for the North American oil and gas industry, Rystad said, as 62 oilfield service (OFS) companies and 46 exploration and production (E&P) companies filed for bankruptcy protection. Based on data compiled by global law firm Haynes and Boone, the average debt covered by E&P filings reached a record $1.2bn, while the average OFS debt was about $725mn.

“A significant part of last year’s E&P Chapter 11 activity was the result of a trend that started in 2019, when we saw a massive change in the standard US E&P business model with reduced availability of capital,” Rystad said. “This contributed to early Chapter 11 filings by companies dealing with a challenging trade-off between shoring up their balance sheet and securing funds for operations.”

Covid-19, it said, accelerated this trend by fast-tracking some Chapter 11 filings that would have happened even without the downturn, and tested the balance sheet strength of some companies that felt “relatively secure” before the pandemic shattered global oil and gas markets.

Bankruptcy filings in 2020 slowed in Q4 – Chapter 11 debt has remained below $6.2bn since September 2020 – as crude oil prices recovered, and with West Texas Intermediate now largely holding above $50/b, Rystad expects filings to normalise to pre-pandemic levels.

“In essence, nearly all public E&P producers are now positioned to navigate 2021 without significant bankruptcy risks,” Artem Abramov, Rystad’s head of shale research, said in the note. “Nevertheless, regardless of the upcycle, we should keep in mind that a certain number of Chapter 11 E&P cases is normal and should be viewed as an integral part of the oil and gas business.”

Rystad is forecasting total debt behind E&P bankruptcies will fall to the $10-$13bn/yr range this year and next, from $56bn in 2020.