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article imageBankruptcies on the rise as shale investment falters

By Karen Graham     Sep 3, 2019 in Business
Bankruptcies are rising among American oil and gas companies, according to a new report from law firm Haynes and Boone LLP, as Wall Street’s disaffection with shale companies reverberate through the industry.
To date, at least 26 exploration and production (E&P) firms have filed for bankruptcy through mid-August, including Sanchez Energy Corp. and Halcón Resources Corp. This figure almost matches the 28 total filings for bankruptcy filed in 2018, reports Oilprice.com.
The debts for all 26 companies total $10.96 billion. However, according to the Wall Street Journal, this year's figure is expected to rise as many companies face mounting debt maturities.
Haynes and Boone LLC noticed a surge in bankruptcies in May this year following a -23 percent correction in WTI prices from mid-April to mid-June. According to the company, in 2018, 28 E&P firms filed for bankruptcy, posting $13.2 billion in debt, while 24 firms asked for protection in 2017 with $8.5 billion in debt.
Many energy companies with junk-rated bonds have been defaulting at a rate of 5.7 percent as of August, according to Fitch Ratings. This is the highest level since 2017. The metric is considered a key indicator of the industry’s financial stress.
For several of these producers, such as Halcon, the filings follow a previous trip through Chapter 11 during the 2015-2016 oil and gas downturn. Most of these energy companies ended up deeply in debt after betting their production gains on the assumption that higher oil prices would sustain them.
The big problem was that investors lost interest after years of meager returns, leaving a number of companies struggling to meet their debt burden with oil prices hovering below $60 a barrel. The hardest hit is the private producers and small energy companies. They generate collectively, a large portion of U.S. oil, according to the consulting firm RS Energy Group.
More about shale investment, oil and gas companies, Bankruptcies, Business, E&P firms
 
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