More than 35 percent of independent oil producers are teetering on the edge of bankruptcy this year, according to a new study.
Rock bottom crude prices and mountains of debt could claim the scalps of 175 highest-risk companies across the world, Deloitte analysts argue.
The report, based on a review of more than 500 publicly traded oil and natural gas exploration and production companies, shows another 160 companies will face similar pain in 2016, despite being less leveraged than their soon-to-be bankrupt counterparts.
The primary culprit behind the anguish is low oil prices, which have dropped from $100 per barrel in 2014 to less than $35 per barrel today.
“These companies have kicked the can down the road as long as they can and now they’re in danger of kicking the bucket,” William Snyder, head of corporate restructuring at Deloitte, told reporters. “It’s all about liquidity.”
Access to capital markets is drying up, Deloitte’s study notes, leading to bad times for small oil companies.
“Access to capital markets, bankers’ support and derivatives protection, which helped smooth an otherwise rocky road for the industry in 2015, are fast waning,” John England, who leads Deloitte’s oil and gas sector, said in a statement on Deloitte’s website.
Oil exploration companies have scrimped and saved, or raised, about $130 billion in a mad attempt to brace themselves for cratered prices, Deloitte’s report suggests. “The landscape has never been more complicated,” Andrew Slaughter, an executive director at Deloitte, said in a written statement.
He continued: “Staying solvent will require the same level of perseverance, innovative thinking and creativity as the technology breakthroughs that led to the boom in supply we have seen over recent years.”
Oil companies hoped against hope that talks between Russia and Saudi Arabia Tuesday might lead to a freeze in crude output, giving oil producers a shot in the arm.
But the agreement might drop by the wayside after Iran, which openly admitted to wanting to increase oil outputs, decided not to attend the talk.
“2016 is the year of hard decisions, where it will all come to a head,” England said.
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