September 16, 2020 Read More →

Reports paint gloomy financial picture of U.S. oil and gas sector

S&P Global Market Intelligence ($):

The number of oil and gas producers filing for Chapter 11 bankruptcy declined in August compared to July, but there are a number of signs showing things have not improved much in the oil patch.

In its most recent update on upstream bankruptcies, Haynes and Boone LLP recorded four filings in August, down from nine in July. Still, the 13 bankruptcies reported in the third quarter tie for the sixth-busiest quarter since the law firm began following oil patch bankruptcies in 2015. There have been a total of 36 Chapter 11 filings in the upstream segment in the first eight months of 2020.

Haynes and Boone said it expects the stream of producers entering Chapter 11 would continue to be substantial through the end of the year. Bankruptcies in the segment are up 62% year over year, though well below the 2016 bloodbath when 61 companies filed in the first three quarters of the year.

Another troubling indicator came in a new report from the Institute for Energy Economics and Financial Analysis, or IEEFA, which showed producers are continuing to overspend. In a survey examining 34 North American shale-focused producers, IEEFA found the companies spent $3.3 billion more on drilling and capital projects than they generated by selling oil and gas in the second quarter. That came after most producers slashed their capital budgets, most by one-third or more, in response to the collapse in oil prices.

“In financial terms, companies in the center of the U.S. fracking boom have been performing terribly for years,” IEEFA financial analyst Clark Williams-Derry said. “But last quarter was particularly dismal, characterized by low prices, falling revenues, collapsing investment, and declining investor sentiment.”

IEEFA said 27 of the 34 companies in its study “spilled red ink” in the second quarter, led by EOG Resources Inc.’s negative free cash flow of $360 million. With both oil and gas prices remaining low and demand still below first-quarter levels, the institute said there was little reason for optimism when reviewing the upstream segment. “More bad news is on the horizon,” IEEFA said, noting the decrease in income producers are facing. “Revenues for the companies in the IEEFA analysis have plunged $21.3 billion from the previous 12-month period, from $33 billion to $11.7 billion.”

[Mark Passwaters]

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