One of the largest shale drillers in the country filed for bankruptcy recently as the oil and gas industry deals with a one-two punch of coronavirus fears and Russia’s continued war against U.S. energy producers.
Whiting Petroleum became the first giant shale company to slide into bankruptcy Wednesday as many energy producers meet debt obligations and an oil war between the world’s largest energy producers. Whiting sought chapter 11 protection in Texas amid the strife.
Prices fell into the $30s as the Saudis pushed for a cut in output to prop up prices, while Russia is working to infuse the market with hundreds of thousands of barrels of oil. Moscow is worried that the U.S. will use shale oil to take advantage if Saudi Arabia ease off production.
Bankruptcies are expected to increase as crude production increases while demand plummets, according to Buddy Clark, a co-chair at international corporate law firm Haynes & Boone.
“It’s a dire situation for everyone,” Clark told the Wall Street Journal Thursday, noting that even bankruptcy courts are under pressure as bankruptcy cases explode. “It’s a weird dynamic, but people will want to get into bankruptcy quickly in order to beat the rush.”
Other energy companies will likely experience similar problems. (RELATED: ‘This Is Masochism’: Russia Wages An Oil War Against Saudi Arabia, US Amid Coronavirus Concerns)
U.S. drillers could default on $32 billion of debt throughout 2020 if the virus and Russia continue walloping the industry. The default rate is projected to come in at 17%, according to credit-ratings firm Fitch Ratings. Fitch forecasted a 7% default rate before the virus pandemic.
Meanwhile, oil prices rallied Thursday after President Donald Trump hinted that his Russian counterpart, Vladimir Putin, and Crown Prince Mohammed bin Salman told him they might reduce crude production.
Trump said in a tweet that day that he “spoke to my friend MBS (Crown Prince), who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels.”
Oil prices pitched upward shortly thereafter. The Dow Jones industrial average jumped more than 500 points after Trump’s remarks. The president’s bold talk provides a reprieve to a beleaguered oil industry, which saw the price of oil fall roughly 60% over the past month.
Natural gas production, for its part, was on the incline for more than a decade before this most recent hiccup. Natural gas producers are highly vulnerable to Russia and Saudi Arabia’s forays as they are indebted — production firms have
Many energy companies that specialize in extraction from shale and fracking are vulnerable because they are highly indebted. Energy production firms have $86 billion of debt coming due over the next four years, so any dip in oil or energy prices makes it difficult to pay down those debts.
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