Climate

Why 175 Oil And Gas Companies Could Go Bankrupt This Year

CREDIT: shutterstock

About a third of U.S. oil and gas production and exploration companies are at high risk of going bankrupt in 2016, according to a new report.

The report, published Tuesday by consulting and business services firm Deloitte, looked at more than 500 oil and natural gas exploration and production companies worldwide. It found that 175 of the companies — or nearly 35 percent — were at high risk of going bankrupt, due largely to low oil prices. Together, these companies have more than $150 billion in debt.

“2016 will be the year of hard decisions. We could see [energy and production] bankruptcies surpass Great Recession levels as companies struggle to remain solvent,” John England, vice chairman and U.S. oil and gas sector leader for Deloitte, said in a statement. “Access to capital markets, bankers’ support and derivatives protection, which helped smooth an otherwise rocky road for the industry in 2015, are fast waning.”

Oil prices have dropped over the last few years, and are now down to about $29 a barrel for crude oil. The drop in oil prices has caused a slowdown in some oil-producing states. North Dakota, for instance, has been riding a boom in oil production for the past eight or so years — now, new drilling is getting scarcer, and the man camps that popped up to house oil field workers are starting to empty.

“Those communities out there were drinking out of a fire hose,” Nancy Hodur, a research assistant professor at North Dakota State University, told the New York Times of North Dakota towns that had been built up around drilling in recent years. “A lot of those communities would come right out and say that pace of growth isn’t good, isn’t sustainable. They’re still playing catch-up.”

According to the New York Times, 60 oil and gas companies have declared bankruptcy over the last 16 months. That number could double if oil prices stay where they are.

The Deloitte report outlines five ways companies have tried to cope with the downturn in oil prices, and how effective these efforts were. The companies that are at high risk of bankruptcy now, for instance, were the ones that chose to borrow money and now have a significant amount of debt. Going forward, the report notes, it won’t be easy for companies to adapt to the changing economic climate.

“There is no silver bullet solution that applies to the whole industry; in fact, the landscape has never been more complicated,” Andrew Slaughter, executive director of Deloitte Center for Energy Solutions, said in a statement. “Each company has its own set of unique factors to consider – from issues specific to each producing region and asset, to various states of financial circumstances. Staying solvent will require the same level of perseverance, innovative thinking and creativity as the technology breakthroughs that led to the boom in supply we have seen over recent years.”

The oil industry isn’t the only fossil fuel industry to be hit with a downturn. Coal, too, has been declining in recent years, as U.S. coal faces competition from cheaper natural gas. Multiple major coal companies have filed for bankruptcy over the last few years.