US shale industry braces for wave of bankruptcies

The biggest independent shale oil groups in the US reported a record combined loss of $26bn in the first quarter as the sector braces itself for a wave of bankruptcies over the next two years, Report informs, citing the Financial Times.

The collapse in crude demand brought about by the coronavirus pandemic forced more than $38bn in write-offs among top producers, according to an analysis by Rystad Energy, sending net losses tumbling well below an average of $2.9bn in the past six years.

US energy groups have been caught in the eye of the storm as lockdowns aimed at stemming the spread of Covid-19 slashed energy demand and crashed the oil market.

The sweeping impairments reported by the 39 publicly listed US shale oil producers analyzed by Rystad — which exclude majors and gas-focused companies — underline the pressure being faced by the industry as a result of the pandemic.

A recent rally has taken the price of West Texas Intermediate, the US marker, back above $30 a barrel, having traded in negative territory last month. But it remains down by half since January — and well beneath average break-even oil prices in the shale patch — leaving many more producers teetering on the brink of bankruptcy.

Already 17 smaller US oil and gas producers, with total debt of around $14bn, have filed Chapter 11 bankruptcy this year, according to data from Haynes & Boone.

Analysts at Rystad estimate the total could rise to 73 before the year is out. Another 170 would follow next year if prices remain around current levels.