Deloitte: High Risk Of Bankruptcy For One-Third Of Oil Firms

Deloitte: High Risk Of Bankruptcy For One-Third Of Oil Firms
Roughly a third of oil producers are at high risk of slipping into bankruptcy this year as low commodity prices crimp their access to cash and ability to cut debt, according to a study by Deloitte.

Reuters

HOUSTON, Feb 16 (Reuters) - Roughly a third of oil producers are at high risk of slipping into bankruptcy this year as low commodity prices crimp their access to cash and ability to cut debt, according to a study by Deloitte, the auditing and consulting firm.

The report, based on a review of more than 500 publicly traded oil and natural gas exploration and production companies across the globe, highlights the deep unease permeating the energy sector as crude prices sit near their lowest levels in more than a decade, eroding margins, forcing budget cuts and thousands of layoffs.

The roughly 175 companies at risk of bankruptcy have more than $150 billion in debt, with the slipping value of secondary stock offerings and asset sales further hindering their ability to generate cash, Deloitte said in the report, released Tuesday.

"These companies have kicked the can down the road as long as they can and now they're in danger of kicking the bucket," said William Snyder, head of corporate restructuring at Deloitte, in an interview. "It's all about liquidity."

While 95 percent of oil producers can produce crude for less than $15 per barrel - a testament to cost savings and technological improvements since mid-2014 when only 65 percent of producers could produce near that level - that may not be enough for some, Deloitte found.

Producers are on track to slash budgets again this year, the first time that has happened consecutively since 2016, though many have said prices must rise further to boost profitability.

Some oil producers are also choosing to liquidate hedges for a quick infusion of cash, a risky bet.

"2016 is the year of hard decisions, where it will all come to a head," John England, vice chairman of Deloitte, said in an interview.

The Deloitte study found that oilfield service providers, which provide staffing and equipment needed to drill wells, are filing for fewer bankruptcies than producers. That is likely due to the larger capital costs - and therefore debt - for producers, Deloitte found.

Of the 53 U.S. energy companies that filed for bankruptcy last quarter, only 14 were service providers, a trend that is expected to continue in the short term, Deloitte found.

"Service providers tend to be more of a people business with less capital deployed, so it's easier for them to financially flex," Snyder said. "Eventually, though, they've got to run out of gas, too."

(Reporting by Ernest Scheyder; Editing by Bill Rigby)

Copyright 2016 Thomson Reuters. Click for Restrictions.

WHAT DO YOU THINK?

Click on the button below to add a comment.
Post a Comment
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
Philippe Landras | Feb. 17, 2016
The 2014 crude oil crash has become a financial realigning. The coming M&A with the hot sauce we call bankruptcies is leaving banks with unpaid loans. 150 billion seems to be the latest number. The Dodd-Franks legislation has tied the loaning hands of the banks. The FED liquidity policy has not worked and is making things worst. Banks can no longer loan money even though the interest is 1/4 %. The businesses that would like to barrow at such low rates do not see the demand down the road. No one wants to take any risks. The world economy is bearish. To think that the crude oil price index will go back up to $50 or $60 is to be an optimist, may be in 2017 or 2018. In the meantime, bankruptcy is in front of us.


Related Companies
Events  SUBSCRIBE TO OUR NEWSLETTER

Our Privacy Pledge
SUBSCRIBE



Most Popular Articles

From the Career Center
Jobs that may interest you
Executive Director
Expertise: Business Development|Executive|Project Management
Location: Houston, TX
 
Senior Accounting Analyst Job
Expertise: Accounting|Budget / Cost Control|Financial Analyst
Location: Denver, CO
 
Associate Product Portfolio Manager Job
Expertise: Business Development|Marketing|Sales
Location: Denver, CO
 
search for more jobs

Brent Crude Oil : $54.33/BBL 0.81%
Light Crude Oil : $51.5/BBL 1.29%
Natural Gas : $3.75/MMBtu 1.35%
Updated in last 24 hours