One doesn’t normally look for good news in bankruptcy reports. Instead, we look for confirmation of the bad news we’re expecting. In the latest bankruptcy report from Haynes and Boone, we have the opportunity of doing both.
Actually, there are three reports: on oil patch companies, oil field services and midstream operations. First, some context. Since January, oil prices have fallen from $63/bbl to the current level of around $34/bbl. Analysts believe this is unsustainable for many producers, especially for shale oil producers for whom trouble was predicted if pricing remained at $50-$55bbl.
As of May 31, 19 producing companies have filed for bankruptcy protection this year. Only six were filed outside of Texas. That’s not nearly as bad as the first half of 2016, which saw 51 oil field bankruptcies. The bad news is the trend. Only five of the 19 were filed in the first quarter, meaning 14 have already filed with 30 days left in Q2 2020.
“Lower for longer remains the watchword for producers and their creditors. It is reasonable to expect that a substantial number of producers will continue to seek protection from creditors in bankruptcy even if oil prices recover over the next few months,” notes the Haynes and Boone Oil Patch Monitor.
Only 13 bankruptcies have been filed this year by oilfield services companies. Only two of those were outside Texas and only one, McDermott International, represented more than 85% of the $11.4 billion debt reported by all 13 oil service firms, according to the Haynes and Boone Oilfield Services Bankruptcy Tracker.
Only the energy midstream companies seem to be weathering the higher crude inventories, lower prices and coronavirus-enfeebled demand. According to Haynes and Boone’s Midstream Report, only three firms — Maximum Elite Pipeline, Kingfisher Midstream and Permico Midstream Partners — filed for bankruptcy in the first five months of 2020 (all from Texas), and since 2015 only 24 midstreams have filed nationwide.