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OilPrice.com: Prepare For The Next Wave Of Oil Bankruptcies

Alex Kimani: Oilprice.com

Last year, the energy industry was rocked by record bankruptcies and write-downs that did not spare even the oil majors. According to Energy and Restructuring law firm Hayes and Boone’s, a grand total of 50 energy companies filed for bankruptcy last year, including 33 oil and gas producers, 15 oilfield services companies and two midstream companies.

Meanwhile, Chevron Corp., Schlumberger, and Royal Dutch Shell announced multi-billion dollar asset impairments citing unfavorable macro outlook.

And this specter of doom and gloom appears set to continue for much longer, with concerns mounting that the ax could now fall on debt-ridden oilfield services companies. North American oilfield services and drilling companies face a $32 billion wave of debt that will come due this year through 2024, a daunting prospect considering that oil prices have crashed to nearly 20-year lows.

The outlook appears particularly grim for companies in dire need of a capital infusion and those with weak credit ratings as drilling work dries up amid the oil price crash; rising COVID-19 infections and the Saudi Arabia and Russian price war that threatens to flood global markets with even more crude output.

The poor state of the oilfield services companies is clearly reflected in the sector’s favorite benchmark, the VanEck Vectors Oil Services ETF (NYSEARCA:OIH), down 72% YTD and considerably lower than the 30% plunge by the S&P 500.

Junk Bonds

Oilfield services and drilling companies have some of the most high risk debt, with

junk-rated companies accounting for 65% of the $32B debt tab by the sector. Of these companies, Transocean (NYSE:RIG) has $4.3B; Valaris (NYSE:VAL) has $1.8B, Nabors Industries (NYSE:NBR) owes $1.4B and Superior Energy Services (NYSE:SPN) has $1.3B of debt set to mature within the next two years as per Moody’s.

Related: Oil Majors Are Preparing For $10 Oil

According to Moody’s senior analyst Sreedhar Kona, “The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets.

The sector’s biggest investment-grade firms such as Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL), Baker Hughes (NYSE:BKR) and National Oilwell Varco(NYSE:NOV) are better placed to weather the storm since they offer other services that can offset reduced drilling activity.

FULL ARTICLE

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