HOUSTON — More than one-third of independent oil and gas producers are at risk of slipping into bankruptcy this year, according to a new study by consulting group Deloitte.
The crisis of low prices and a combined $150 billion in debt could claim the 175 highest-risk companies across the globe this year, Deloitte analysts said. Another 160 companies have less leverage, but will face an “almost equally alarming” 2016 as their cash flow is eviscerated by sub-$30 crude oil.
“We could see E&P bankruptcies surpass Great Recession levels as companies struggle to remain solvent,” said John England, who leads Deloitte’s oil and gas sector, in a written statement.
“Access to capital markets, bankers’ support and derivatives protection, which helped smooth an otherwise rocky road for the industry in 2015, are fast waning.”
Exploration and production companies have saved or raised about $130 billion in anticipation of the cash crunch, Deloitte said. About two-thirds of those savings have come through means other than outright budget cuts, such as asset sales or issuing new equity.
But with hope for a rapid recovery fading, Deloitte analysts noted that additional access to capital may have dried up. Producers can still save money by cutting dividends or share repurchasing programs, but most have already made deep cuts to those outlays, analysts said.
Capital spending is likely to fall as well. Combined, the cuts in 2015 and 2016 will be the first since the mid-1980s that budgets have fallen for two consecutive years.
Analysts noted that M&A activity will likely rise as well, though companies will be more focused on return than opportunities to grow.
“The landscape has never been more complicated,” said Andrew Slaughter, an executive director at Deloitte, in a written statement. “Staying solvent will require the same level of perseverance, innovative thinking and creativity as the technology breakthroughs that led to the boom in supply we have seen over recent years.”