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The Great American Oil & Gas Massacre: Bankruptcies Hit New Milestone as Bigger Companies Let Go

October 17, 2020

The Great American Oil & Gas Massacre: Bankruptcies Hit New Milestone as Bigger Companies Let Go

The American Oil Boom Was Where Money Went to Die.

The amount of secured and unsecured debts, such as loans and bonds, listed in bankruptcy filings in the third quarter by US oil and gas companies, at $34 billion, pushed the total oil-and-gas bankruptcy debt for 2020 to $89 billion, according to data compiled by law firm Haynes and Boone. And this nine-month total already surpassed the full-year total of oil-bust year 2016.

These are predominately exploration and production companies (E&P) and oilfield services companies (OFS) but also include some “midstream” companies (they gather, transport, process, and store oil and natural gas).

In mid-2014, the price of crude-oil benchmark WTI, which had been over $100 a barrel, started plunging. The companies involved in fracking couldn’t even generate positive cash flows at $100 a barrel. And as prices plunged, all heck broke loose. Creditors and equity investors, after drinking the Kool-Aid for years, suddenly got scared, and new money dried up to service the old money. A slew of bankruptcies ensued among the smaller players, reaching a high in 2016. And people thought that was it, the oil bust was over, and new money started pouring back into the sector.

But then came Phase 2 of the Great American Oil-and-Gas Bust in late-2018, with the price of WTI in the futures market eventually collapsing briefly to minus $37 a barrel in April 2020. In recent weeks, WTI has been hovering around $40 a barrel, at which the US oil industry is still burning millions of barrels of cash per day, so to speak:

The total number of oil-and-gas bankruptcies so far this year, at 88 filings, remains a lot lower than the 141 filings in 2016. Back then, scores of small companies were shaken out. Now the bigger ones with multi-billion-dollar debts are letting go as the crisis is working up the ladder.

…click on the above link to read the rest of the article…

 

As Trump Leaves Permian Oilfield, Industry Insiders Question If 2020 Bust Marks Texas Oil’s Last Big Boom

August 5, 2020

As Trump Leaves Permian Oilfield, Industry Insiders Question If 2020 Bust Marks Texas Oil’s Last Big Boom

Yesterday, President Trump left Midland, Texas, after arriving in the state’s Permian oilfield region for a $2,800 a plate luncheon and a “roundtable” that required each participant to pony up $100,000.

The west Texas Mr. Trump left behind bears little resemblance to the region as it was when he first took office in January 2017, as the shale rush resumed following 2016’s oil price plunge.

Today, the shale boom of the 2010’s is officially bust, battered not only by the US’s outsized failure to control COVID-19 outbreaks and an oil price war in which foreign producers proved their ability to steer oil prices, but also a wave of multi-billion dollar write-downs by oil giants — write-downs that predated both the price war and the pandemic and resulted from the industry’s perpetual struggles to generate profits from shale drilling and fracking regardless of the price of oil.

Last Friday, just 103 active drilling rigs dotted Texas, according to data from Baker Hughes. That’s down from 403 drilling rigs as 2020 began and the state’s peak this decade of 930. Just 251 active oil and gas rigs could be found across the entire United States, the lowest number recorded since Baker Hughes began tracking the rig count back in 1940.

In late February, the nighttime horizons around Midland and Odessa were still dotted with brightly burning oil well flares, dozens of flickering licks of flame that cast an uncertain light across the mesquite and cotton fields of west Texas. Mancamps and hotels already appeared partially emptied out, even while a constant flow of truck traffic streamed along the desert highways.
Empty worker housing at FTSI in Odessa, Texas. May 27, 2020. Credit: ©2020 Justin Hamel

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How US Oil Booms & Busts Hit Industrial Production

November 16, 2018

How US Oil Booms & Busts Hit Industrial Production

Fueled by cheap money and by dashed hopes of high oil prices.

Industrial production in October rose 4.1% from a year ago, the Fed Board of Governors reported this morning. This was in the upper portion of the range since 2010. It was powered in part by the blistering oil & gas production boom that followed the Oil Bust of 2015 and 2016.

This chart shows the percent change in industrial production from the same month a year earlier. The red bars – industrial production falling year-over-year – coincide with the recession in the goods-based economy, the transportation recession, and the Oil Bust:

As part of the overall index, manufacturing rose 2.7% from a year ago, utilities 1.7%, and mining, which includes oil & gas extraction, jumped 13.1%. Oil & gas extraction on its own soared 16.5% from a year ago.

On a monthly basis oil & gas extraction edged down a smidgen over the past two months from a spikey record in August, when it had soared 22.9% year-over-year.

The chart below shows the Industrial Production sub-index for crude oil and natural gas extraction. Note the brief effects of Hurricane Katrina when production along the Gulf Coast was shut down, the Financial Crisis when everything came to a standstill, the subsequent fracking boom, the oil bust in 2015 and 2016, and then the renewed boom. Since the trough of the oil bust in September 2016, the index has surged 31.5%:

It has been a wild ride in the oil & gas sector. At the end of 2008 – following the Lehman Moment – everything came to a halt for a couple of months, but then activity rebounded. Starting in 2011, the fracking boom, fueled by waves of new money trying to find a place to go, took off. At the time, oil prices (WTI) ranged from $75 to $113 a barrel. But in July 2014, oil prices began to dive, and in 2015, the oil bust hit production.

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Oil Bust Could End Dollar Domination

January 15, 2016

Oil Bust Could End Dollar Domination

The US dollar survived the collapse of Bretton Woods in the ‘70s because its use in crude oil transactions made it the king of reserve currencies, but can it survive a collapse of petro dollars? Can the world survive the catastrophic geopolitical consquences that would follow?

There is an overriding belief that the U.S. dollar can hold onto its status as the world’s king reserve currency simply because of petro dollars. But in recent years, a serious threat to this system has developed—and the risk of the dollar being dethroned is very real.

The U.S. dollar has reigned supreme since the end of WWII, when the Bretton Woods system gave it is initial power. With Bretton Woods’collapse in 1971, oil became its new saviour and kingmaker as the U.S. dollar became the prime currency for crude oil transactions.

In 1973, the U.S. made a pact with the Saudi King to conduct all crude oil trades in U.S. dollars—in return for U.S. protection of its oil fields. Because of world hunger for crude, the demand for U.S. dollars experienced a similar, sustained hunger.

Related: $380 Billion In Upstream Projects Delayed As Oil Keeps Tanking

The major producers of crude oil had an abundance of dollars, which was recycled back into the system to purchase dollar-denominated assets. The consumers pay for crude oil in dollars; hence, they always have to keep a steady reserve of dollars, thereby maintaining a high demand for the the currency.

This is now under threat, and history risks being repeated.

The Bretton Woods system failed due to the over valuation of the dollar as spending increased over the war in Vietnam war and America’s Great Society programs.

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Will ‘Corner Office Syndrome’ Be The Downfall Of Canada’s Oilfield Services?

July 27, 2015

Will ‘Corner Office Syndrome’ Be The Downfall Of Canada’s Oilfield Services?

No sector of the economy should be considering the urge to merge more than Canada’s beleaguered oilfield services (OFS) business. The signals are powerful: overcapacity in virtually every product and service line; prices down to slimmest of margins; bankers are unhappy and getting twitchy; shareholders are morose and OFS operators have to do something because doing nothing is no longer an option.

The short- and medium-term outlook is not promising. Oil prices are going down, not up. The recent nuclear deal with Iran will continue to overhang well-supplied world crude markets into next year. Even if oil rose sharply tomorrow, Alberta would still suffer from heightened uncertainty until the royalty issue is clarified.

New oil sands projects are dead. LNG is paralyzed by price, cost and global market turmoil. E&P companies looking to drill are demanding the lowest prices possible. Bankers who have been patient for months cannot kick the forbearance letter can down the road forever.

Because of a collapse in business, along with oil prices, oilfield service managers have been cutting costs since late last year. Workers have been laid off by thetens of thousands. Capital spending and maintenance programs have been slashed or postponed. Discretionary expenditures like travel and entertainment have been cancelled. Pay cuts have been instituted. Dividends reduced or eliminated. Principal payments postponed where possible.

Related: Toxic Waste Sullies Solar’s Squeaky Clean Image

The last major expense not yet addressed in any meaningful way is a measurable reduction in administrative (non-revenue generating) costs per dollar of revenue. This is the CEO, COO, CFO, VP marketing, HR manager, safety officer and corporate head office. Reduced expenses for field service locations and product and service delivery. Increased purchasing power in other words.

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Calgary Office Market Gets Crushed. Oil, China Blamed

July 19, 2015

Calgary Office Market Gets Crushed. Oil, China Blamed

The office vacancy rate in downtown Calgary, the epicenter of the Canadian oil bust, could hit the vertigo-inducing level of 17.5% by the end of 2018, a new report by commercial real-estate firm Colliers International warned – and added some ominous clouds: “Given the current global macro environment, this may even be an optimistic forecast.”

While real estate is supposedly local, it’s not. It has been, like so many things, globalized. Colliers:

The geopolitical turmoil in China, Greece, and Iran must be taken into consideration, as the global instability is already affecting local top-level decisions and investor sentiment.

The biggest problems are cropping up in the sublease sector, according to the Calgary Herald, citing Colliers’ report. Sublease availability began to balloon in late 2014. The oil bust was hitting hard. Canada’s tar-sands operations are particularly at risk since they’re the world’s high-cost producers; they’re sitting ducks in an oversupplied market where an all-out fight over market share has broken out.

So, according to the report, “international energy companies began reallocating capital to other parts of the world.” Local operators, to stay alive a little longer, tried to slash operating expenses and conserve cash where they could. Layoffs and consolidations followed. A lot of people in the oil business are contractors; and their hours were getting cut. And companies began shedding by then useless office space.

But there have been few takers.

By the end of June, available sublease office space in downtown Calgary, after soaring for three quarters in a row, hit an all-time record of 2.6 million square feet. At 52% of all available office lease space, sublease space exceeded headlease space for the first time since Q4 2009, during the Financial Crisis. That’s a bad sign.

 

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Oil Falls Off the Chart, Crushes Hopes

July 7, 2015

Oil Falls Off the Chart, Crushes Hopes

Greatest oil glut in history exacts its pound of flesh.

The ugly data for oil – ugly for those who’ve been hoping for, and hyping, a quick rebound to Nirvana – keeps piling up. But for two months, the price of oil was immune to it, trading in a range of around $60 per barrel for the US benchmark West Texas Intermediate.

It stirred up false hopes that lured yield-desperate investors into plowing more money into the industry, which allowed companies to raise many billions in new debt and equity capital so that the permanently cash-flow-negative business model of fracking could soldier on.

But on June 24, reality did start to hit. From that day’s high of $61.50 a barrel, it has been one nasty ride. Currently, WTI trades for $52.67 a barrel, after a 7.5% plunge since Thursday (Friday had only limited trading) to settle at the lowest level since April 13, down 14.4% since June 24. This is what the swoon looks like in 5-hour increments:

US-WTI-06-10-2015=07-06-2015

OPEC, which is furiously fighting for market share, has no intention of cutting back production. While its limit has been 30 million barrels per day (bpd), reality has been making a mockery of it. In June, production rose 170,000 bpd to 31.28 million bpd, the fourth months in a row of increases, and the highest level since August 2012, according to Platts’ report released today.

While some OPEC members experienced declining production and lost market share in June, Saudi Arabia increased production to 10.35 million bpd and Iraq added a phenomenal 330,000 bpd to produce over 3 million bpd.

Output “seems to be on the way up, and at a time when the market could be looking at a lot more oil from Iran,” explained Margaret McQuaile at Platts.

 

…click on the above link to read the rest of the article…

Oil Bust Mauls Texas Manufacturers, Atlanta Fed Sees Hit to Broader US Economy

February 24, 2015

Oil Bust Mauls Texas Manufacturers, Atlanta Fed Sees Hit to Broader US Economy

By now, every executive in the American oil patch goes through the day with one eye riveted on the price of oil. And on Monday, West Texas Intermediate plunged once again below $50 a barrel. It has become the nightmare price for Texas manufactures.

The Texas economy grew admirably during the fracking boom. The high price of oil threw money in all directions. Drillers and oil field services companies, along with suppliers of the drilling boom raked in orders and the big bucks. But now the fracking boom has turned into a fracking bust, and the consequences are spreading through the economy.

The Dallas Fed’s February manufacturing index for General Business Activity dropped to -11.2 from the already crummy -4.4 in January, the lowest level since April 2013. In the survey, 22% of the business executives reported that conditions were “worsening” while only 10.8% said conditions were “improving.”

The new orders index swooned to -12.2, the “lowest reading since June 2009.” Growth of new orders hit -16.3, unfilled orders -17.3. The shipments index dropped to -3.3, “a low not seen since 2009.”

This is how companies are reacting: as costs are getting slashed to preserve cash flow, the capital expenditures index dropped to -4.8.

Texas, the job creating machine? The employment index is beginning to stagnate: 15% of the companies reported net hiring, 14% reported net layoffs, and the hours worked index descended into the negative.

 

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Never before has drilling for oil collapsed this far this fast.

February 14, 2015

Never before has drilling for oil collapsed this far this fast.

The word “boom” can never be thought of as a stand-alone concept that everyone loves, particularly governments because they get to rake in the big bucks. It’s always attached to its miserable twin that no one wants to see, the “bust.” They come invariably in cycles, one after the other. You can’t have one without the other. It’s just a question of time. And in the world of fracking, it’s no different.

The fracking-for-oil boom started in 2005, collapsed by 60% during the Financial Crisis when money ran out, but got going in earnest after the Fed had begun spreading its newly created money around the land. From the trough in May 2009 to its peak in October 2014, rigs drilling for oil soared from 180 to 1,609: multiplied by a factor of 9 in five years! And oil production soared, to reach 9.2 million barrels a day in January.

That’s what real booms look like. They’re fed by limitless low-cost money – exuberant investors that buy the riskiest IPOs, junk bonds, leveraged loans, and CLOs usually indirectly without knowing it via their bond funds, stock funds, leveraged-loan funds, by being part of a public pension system that invests in private equity firms that invest in the boom…. You get the idea.

That’s how much of the American shale-oil revolution was funded.

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