US Shale Industry faces $300 bln in losses, possible wave of bankruptcies – Deloitte
Sputnik news agency and radio 16:30 GMT 22.06.2020
WASHINGTON (Sputnik) - The US shale industry is entering a period of "great compression" and could face up to $300 billion in losses and a wave of bankruptcies due to the coronavirus pandemic, a study conducted by the global accountancy firm Deloitte said in a new study on Monday.
“According to the study, challenging oil market and economic conditions could prompt the shale industry in aggregate to impair or write-down the value of their assets by as much as $300 billion — with significant impairments expected in the second quarter of 2020,” the study said. “As a result, the leverage ratio of the industry could increase from 40% to 54%, potentially setting off a chain reaction of insolvencies and restructuring.”
According to Deloitte's new study, dubbed "The Great Compression: Implications of COVID-19 for the US Shale Industry," about a third of today's US shale operators are technically insolvent with oil prices at $35 per barrel, and some 50 percent at $20 per barrel.
“As asset impairments and write-downs increase debt ratios, an even greater number of companies could become at risk for bankruptcy,” it noted.
The pressures of the pandemic could prompt a wave of consolidation in the US industry, Deloitte said.
"The history of oil and gas is filled with periods of extensive consolidation. Following a 15-year boom, the US shale segment appears to be next. As COVID-19 impacts amplify pressures on shale companies through 2020, a wave of impairments may prompt the deepest consolidation the industry has ever seen over the next six to 12 months," it said.
The production of US tight crude in 2020 is expected to fall by 0.81 million barrels daily year-on-year and will average some 6.8 million bpd, while US liquids production will contract 1.4 million bpd this year, OPEC said last Wednesday.
The International Energy Agency (IEA) said earlier in June said US oil production is set to fall by 0.9 million barrels per day (bpd) in 2020 and a further 280,000 bpd next year due to low oil prices, weak demand and limited storage availability.
