Can $50 Oil Prices Turn Around Energy Sector? | FTI Consulting

Can $50+ Oil Prices Turn Around the Energy Sector?

Corporate Finance & Restructuring | Energy, Power & Products (EPP)

February 1, 2021

oil rig

It’s common knowledge that the U.S. energy sector has produced more bankruptcy filings than any other industry sector since 2015, but few outside the industry appreciate what a dismal year 2020 was in the oil patch.

The U.S. energy sector has seen more than 500 bankruptcy filings since 2015, including 108 filings in 2020, according to data from Haynes Boone1 – the worst year for filings since 2016 when the sector nearly collapsed following OPEC’s momentous decision in late 2014 to end its role as a swing producer that stabilized global oil prices.

The energy sector endured wrenching contraction and transformation to survive the collapse in oil prices that ensued in 2015-2016 and got off the mat in 2018-2019 before taking another knockdown blow last year. With oil prices now holding above $50 per barrel, global energy consumption on the rise again and the prospect of a robust economic recovery kicking in once COVID-19 vaccinations are widely rolled out, let’s consider whether the U.S. energy sector is poised for a rebound.

In some respects, 2020 was a worse year for the energy sector than 2016. While the number of energy-related bankruptcy filings last year trailed 2016 by nearly 30%, total liabilities at filing approached $100 billion last year, topping 2016’s total of $92 billion.1

Moreover, drilling activity, as measured by active rigs, touched a multi-decade low of 220 in August, easily taking out the previous low of 330 in mid-2016.2 Overall, U.S. land rig activity fell by more than 50% in 2020, closing the year at nearly 350 active rigs. Consequently, the oilfield service companies (OFS) that perform drilling and completion services accounted for approximately 60% of all energy-related bankruptcy filings in 2020.

Footnotes:

1: Oil Patch Bankruptcy Monitor and Oilfield Services Bankruptcy Tracker, Haynes and Boone, LLP, December 31, 2020

2: Drilling Productivity Report, U.S. Energy Information Administration (EIA), January 2021


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