Whashington
A push by President Donald Trump and the world’s biggest oil producers to shore up crude prices has failed to stop an avalanche of bankruptcies in the industry, and more are still to come.
The Covid-19 pandemic’s devastating effect on the oil market is rippling throughout the supply chain, from explorers to the companies that provide them with workers and equipment. London-based Valaris Plc, owner of the world’s largest offshore rig fleet, became the latest casualty on Wednesday. In North America alone, dozens of producers and oilfield servicers have gone bust in 2020, and Mizuho Securities USA predicted earlier this year that as many as 70% of U.S. shale producers may go bankrupt.
Oil prices pulled out of a freefall after an agreement by OPEC and its allies, prodded by Trump, to rein in production. But after embarking on aggressive growth plans when crude was trading above $100 a barrel a few years ago, the industry is still grappling with crushing debt loads, and demand for oil and petroleum products remains well below normal as nations struggle to control the spread of the virus. Longer term, oil companies are facing investor calls to address climate change and transition away from fossil fuels.
“Oil probably in the second quarter faced the biggest challenge it’s ever seen with the largest demand shock that oil has ever experienced,” James West, an analyst at Evercore ISI, said Wednesday in a phone interview. But “we’ve still got plenty of runway for fossil fuels and hydrocarbons. While there’s still a movement to bring in alternatives, they lack some critical mass, and we’re going to be using oil and gas, particularly natural gas, for the foreseeable future.”
U.S. shale drillers, many of which borrowed heavily to pay for drilling rights in prime areas and kept boosting output even as crude prices slumped from the highs reached in the last decade, were among the first to go bankrupt. High-profile victims so far this year included Whiting Petroleum Corp., once the largest oil producer in North Dakota’s Bakken shale region, and Chesapeake Energy Corp., the archetype for America’s extraordinary shale-gas fortunes. Though international oil majors like BP Plc and Chevron Corp. have stronger balance sheets, they’ve eliminated thousands of jobs.—Bloomberg