North American Oil and Gas Bankruptcies

With the slump in crude oil and natural gas prices dozens of North American oil and gas companies have commenced Chapter 11 bankruptcy. According to the law firm Haynes & Boone, 42 companies in exploration & production (E&P) and 39 companies in middle-market oilfield services have filed for bankruptcy protection during 2015 in the US and Canada.

The total amount of aggregate debt involved in filed cases reached $17.2 billion for E&P and $5.3 billion for oilfield services companies. Texas leads North America in both sectors by number of filings, while Delaware has been the venue with most bankruptcy filings by amount of debt, with the largest reported bankruptcies attributed to Samson Resources Co. ($4.3B) in E&P and Vantage Drilling ($2.7B) in oilfield services.

As many as one third of American oil-and-gas producers could tip toward bankruptcy and restructuring by mid-2017, according to Wolfe Research (WSJ). While amounts of debt under the threat in oil & gas sector seem small relative to the overall size of the US economy, the rising tide of corporate bankruptcies can create undesirable effects indirectly through the transmission of elevated implied risk premiums across financial markets. US high yield corporate bonds spreads have already risen to the  highest levels in recent years as global oil prices have declined, fueling weakness for domestic and global equities.

Sources: North America Oil Patch Bankruptcy Monitor, January 2016; North American Oilfield Services Bankruptcy Tracker, January 2016; Interest Rate-Monthly, January 2016