Year after key OPEC meeting, oil bankruptcies rise to 37

HOUSTON – A year after Saudi Arabia and its oil cartel decided to keep their oil wells running and let plunging prices correct a global oversupply, the number of bankruptcy cases among North American oil drillers has risen to 37.

And that figure could double next year if crude stays cheap, as at least as many oil companies appear to be on the precipice of running out of cash or are coming up on deadlines to pay off their debt, attorneys at Dallas-based Haynes & Boone said Friday.

The casualty count could end up growing larger than in the 2009 financial crisis, when the oil market crashed for a relatively short period and 60 U.S. and Canadian drillers went bankrupt.

See all the energy companies that have gone bankrupt during the recent downtown in the slideshow above. 

“It’s harder to withstand low prices for a long time,” said Buddy Clark, head of the energy practice group at Haynes & Boone, the law firm that tallied up this year’s bankruptcies.

Sixteen of the bankrupt companies were based in Texas. Most of them were small, and didn’t play a central role in the nation’s energy surge over the last few years. But together they had $13 billion in debt.

Related: An Oklahoma of oil at risk amid shaky driller finances

Federal regulators have warned banks for months that oil companies could become riskier investments the longer oil prices stay low. The Office of Comptroller of the Currency said earlier this month the amount of oil-company bank debt that’s considered substandard, doubtful or a loss has climbed five-fold over last year to $34.2 billion. They blamed an aggressive industry run-up in debt from 2010 to 2014 as companies bought property and drilled expensive horizontal wells to capitalize on a new resource, shale oil, which previously had been inaccessible.

It’s “making many borrowers more susceptible to a protracted decline in commodity prices,” the OCC said.

Oil prices have collapsed  since the Organization of the Petroleum Exporting Countries met in Vienna last Thanksgiving and decided to keep their crude production levels steady despite a global oil glut. Saudi Arabia and Iraq have boosted output while U.S. shale plays have lost hundreds of thousands of barrels of production since April. Swift Worldwide Resources estimates 233,000 oil-industry jobs have been swept away by the downturn. U.S. crude, which reached a 2014 peak of more than $107 a barrel, traded for just a few cents over $40 in midday trading Friday on the New York Mercantile Exchange.

Haynes & Boone bankruptcy attorney Charles Beckham said regulators have told bankers they need to review oil companies based on their ability to repay all of their debt, not just the debt they have from the banks, because many drillers took debt from other sources including the riskier side of the debt capital markets. From 2010 to 2015, U.S. oil companies took out about $247 billion in high-yield debt to fuel the shale oil boom.

Regulators “want the banks to look at the borrowers as a whole, and if the ability to repay all of its debt is suspect, then you need to higher-risk your facility,” Beckham said.

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