The recent cyclical maximising in the oil and fuel industry, triggered by the Covid-19 global pandemic in March, once again demanded a thorough review of the U.S. shale industry. At one point, before the turn of events, the shale realized that U.S. hydrocarbon production was in a position of superiority in the market.
In many ways, that’s the case, especially if the volume of barrels produced is all that matters. Despite an expected decline in post-Covid production of between 1.5 and 1.75 million barrels consistent with the day (b/d), overall PRODUCTION in the United States would comfortably remain above 11 million b/d, the highest in the world.
But something a week has passed since the Chaos of the April market in which there was no shale bankruptcy in the United States through an Chapter 11 deposit. The largest scalp of a horrible T2 2020 is that of shale pioneer Chesapeake Energy, who filed his application on June 29. In fact, others will follow, the most recent case is That of Rosehill Resources.
Of the corporations that filed for bankruptcy, only about 30 have liabilities of at least $50 million or more, according to Deloitte. Rosehill, for example, owes $100 million in paper only to senior bondholders.
High production figures mask emerging debt levels and lousy equilibrium points. Since 2010, frackers have burned $300 billion. Although millions of barrels of U.S. crude oil have been put on the market, only a third of them can reach a slight equilibrium point at $35, consistent with the barrel.
Overall, between the last industry recession (2015-2016) and the market turmoil, more than 230 North American oil and fuel producers, mainly the United States, filed for at least $152 billion for bankruptcy, according to law firm Hayes-Boone. The debts of those who were deposited at the time of the 2020 quarter were $30 billion.
Agitation of Covid-19 or not, there is no denying that this is not a fair picture. But what’s problematic here is how those who expect the demise of the U.S. shale industry. Once they return they refer to Chapter 11 balance sheet presentations as a distressed reference. This proved to be a mistake in 2015-16 when the volume of U.S. crude oil production not only recovered, but exceeded pre-crisis levels.
It remains to be noted whether the same can happen again or not, however, talking about bankruptcy figures 11 and denouncing the agility of shale players is the result of a deep lack of understanding of U.S. bankruptcy standards. The country’s current framework allows corporations threatened with bankruptcy to resurface in a restructured new form in the same area they once occupied.
In general, a Chapter 11 bankruptcy filing occurs when a company’s business, debt, and assets, named after the U.S. Bankruptcy Code 11, is reorganized. The global accounting and auditing world calls it “reorganization” bankruptcy because it gives companies time to avoid a fall to give in to oblivion.
In maximum cases, the company will remain open and function as a legal entity. The court where Chapter 11 was introduced will help the company restructure its debts and obligations. Despite the seriousness of the situation, this does not mean the end of the corporation and many U.S. oil corporations have deployed it well to redefine their business, while others have used it to survive,” says Deborah Byers, industry leader and responses for the Americas. and head of the U.S. oil and fuel sector at EY.
Not to mention small shale producers, even corporations as giant as United Airlines and General Motors have used Chapter 11 deposits to reshape their businesses. It is therefore to assume that a presentation of Chapter 11 is the disappearance of a company.
Then there is also the correlation between the value of oil and how it prevents what constitutes or constitutes technical insolvency in the minds of investors and corporations on other issues of the trading or hedging cycle, says Regina Mayor, Global Director of Energy. and herbal resources at KPMG.
Technical insolvency occurs when a company’s liabilities increase faster than its assets due to operational problems, debts, or loans.
In theory, if a lutite manufacturer falls into technical insolvency, say below a value of $35 consistent with the barrel of oil and the value remains above that point for a quarter of a countercurrent; unless there is an accounting insolvency – as a genuine default on debts – the viability of the contradictory with or valid, does not mean its termination as a contradictory business. “
According to possibly or, an open focus on Chapter 11 statistics and so-called technical insolvencies in the United States, the past recession has led many to expect a premature end for the American shale industry. At the time of the last excess, even OPEC would possibly have examined this data too much.
“However, the end never came. After an era of anguish, U.S. industry He’s recovered. By concluding the fate of the debt and oil demand markets, and the scope of the existing slowdown, the market can expect a slow recovery from the U.S. shale. Time. around too.”
The acquisition would come from those who earned it, says Jim Johnson, executive director and supplier of FTSE 250 Hunting Plc (LON: HTG) products. “While those who have stupidly paid cash for the surface will be affected, viable portions of the Lost Basin of West Texas and New Mexico, and Eagle Ford may remain competitive at $30 consistent with the barrel through power gains and charge reductions.
“There will be a lot of pain, as we have already noticed, but it would probably not be a fatal blow. We expect the market to pick up in early 2021.”
And if smaller, more agile actors lead this recovery and some of this category seek to reorganize through Chapter 11 procedures, they would possibly be better placed in the existing recession compared to the last under the U.S. Small Business Reorganization Act 2019.
The law, which came into effect on February 19, 2020, added a new Chapter 11 bankruptcy to facilitate bankruptcy coverage for small businesses explained as “entities with less than $2.7 million in debt,” some other U.S. departments will have to comply with the courts. criteria to qualify.
The new law “imposes a shorter or more complete bankruptcy process, allows for greater flexibility in negotiating restructuring plans with creditors, and provides a personal trustee who will work with the small business debtor and its creditors to facilitate the progression of a consensual reorganization plan.” “
Ultimately, this will be reduced to the survival of the fittest in the shale plot and not to the number of Chapter 11 deposits that appear to accumulate in the early stages of the recession. Cyclical slowdowns or market corrections eliminate the weak, and 2020-2021 will be no different. This whole symbol hasn’t come up yet.
I am a UK-based oil and fuel industry analyst and commercial news editor/editor with over 20 years of experience in the monetary and advertising press. I’ve worked on all the greats
I am an oil and fuel industry analyst founded in the UK and editor/publisher of commercial news with over 20 years of experience in the monetary and advertising press. I have worked on all major media platforms: printing, news delivery, internet and streaming. On various issues of my career, I have been a correspondent for OPEC, the Bank of England and the British Office for National Statistics. Over the years, I have made many comments on the oil and fuel sector, adding prices, procurement scenarios, E-P infrastructure, monetary and commercial exploration data. I am an active commentator on “rude” topics for publications and broadcasters, adding CNBC Europe, BBC Radio, Asia and Middle East networks, through my own website, Forbes and other diverse publications. My comment on the oil market has a partial bias in the source aspect based on the confidence that the threat premium is granted for free, something practical, through cheeky souls who deal with many barrels of paper but probably never went to an oil terminal or reception. end of a pipe. However, after doing both, I am pragmatically satisfied that the paper barrels [or I deserve to say “electronic barrels”] will not go anywhere, in the short term!