2020 is Arguably Worst Year for American Oil Sector

Last year was arguably the most devastating year in history for the North American oil and gas industry.

That’s what Rystad Energy stated in a new report sent to Rigzone, which highlighted that 2020 was the costliest Chapter 11 year ever.

According to a Rystad Energy analysis of Haynes and Boone data, the combined debt of North American exploration and production (E&P) and oilfield service companies that filed for Chapter 11 bankruptcy protection last year was $102 billion. Although the number of filings was lower than in the 2016 downturn, the average debt of the 108 companies that filed for Chapter 11 was almost twice as high at a record $940 million, according to Rystad Energy.

The company noted, however, that last year’s round of Chapter 11 filings fast-tracked an overdue reduction in the number of market participants by removing troubled companies and allowing their healthier competitors to remain in the playing field. Rystad Energy added that a recovery in WTI prices in the last three months of 2020 helped slow down the number of Chapter 11 filings and said if a near $53 WTI level persists in 2021, it expects the filings count to normalize again.

“In essence, nearly all public E&P producers are now positioned to navigate 2021 without significant bankruptcy risks,” Artem Abramov, the head of shale research at Rystad Energy, said in a company statement.

“Nevertheless, regardless of the upcycle, we should keep in mind that a certain number of Chapter 11 E&P cases is normal and should be viewed as an integral part of the oil and gas business,” he added.

“With WTI at $53, the industry is getting back to a normal operations mode. It is also important to keep in mind that the companies with the weakest balance sheets have already filed for bankruptcy. If anything, improved market fundamentals will accelerate the restructuring process that started in 2020 and some E&Ps might return to business faster in 2021,” Abramov went on to say.

To contact the author, email andreas.exarheas@rigzone.com