While these unusual times continue to wreak havoc in various industries, the energy sector has not been spared. Oil prices have dropped considerably; by some estimates it could drop as low as $ 20 a barrel. But perhaps most importantly, demand for oil and gas is no longer roughly where it was.
Although OPEC + has reached an agreement to reduce crude oil production and effectively end its price war, oil prices have fallen further. Countries are losing a lot of money – for example, it is estimated that Russia would lose about $ 100 million a day by failing to reach an agreement to cut crude oil production sooner.
But on a smaller scale, companies also suffer. Take Whiting Petroleum Corporation, the largest crude oil producer in North Dakota and a publicly traded company that makes more than $ 2 billion in annual revenue. The company had to file an application for protection against two weeks ago.
The problem for companies like Whiting that depend on crude oil is that profit margins are already pretty thin. In many cases, the break-even point for American shale oil drillers hovers around $ 40 a barrel.
The forecast doesn’t look too good either; some show that demand could drop to 30 million barrels a day, about a third of what it normally is. At this rate, oil companies must be able to curb and reduce production.
Not so long ago, crude oil companies were climbing high, getting used to oil prices in the 60s per barrel. Now, the question is how many exploration and production (S&P) companies can stay afloat, even if they usually have sufficient resources to do so.
As a result, will many S&Ps go bankrupt in the next few years? Pioneer Natural Resources
Chesapeake Energy worries corporate investors
Today, investors are watching the company closely, looking for the possibility that the company will also go bankrupt. It’s bad timing; the company has some debt on its balance sheet – almost $ 9 billion by 2020.
The challenge? If companies cannot refinance their debt or fail to meet their repayment obligations due to a slowdown in income, their bank accounts will not last forever. In addition, lenders are now reducing their borrowing capacity, making it even more difficult to inject cash, as crude oil may continue to decline. Chesapeake has already hired restructuring advisers, which indicates that he may not be able to get around Chapter 11.
If even large companies face major balance sheet challenges to stay afloat, we can only imagine how difficult it can be for relatively smaller companies that also rely on crude oil as a source of income. key.
In these markets, no one can say with certainty how the low level of oil can fall or when it will rebound. But among this uncertainty, there will not be without bloodshed.