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US and Canadian oil company bankruptcies up 50 per cent in 2019

By Lawrence Gash

Study by leading law firm says the increase indicates that reverberations of the 2015 oil price crash will continue to be felt through at least the first half of 2020

The number of oil and gas firms in the United States and Canada falling into bankruptcy increased by 50 per cent last year, according to a study by a leading law firm.

Haynes and Boone LLP found that 42 oil and gas exploration and production companies filed for bankruptcy in 2019 and observed that this trend would likely continue into the new year.

Between 2015 and 2019 a total of 208 US and Canadian oil and gas production firms filed for bankruptcy. The report stated: “This increase in year-over-year filings indicates that the reverberations of the 2015 oil price crash will continue to be felt in the industry through at least the first half of 2020.”

The rise in bankruptcies could simply be a by-product of the boom in North American oil and gas output. With an increasing number of companies setting themselves up for business, some inevitably fail.

Indeed, far from falling behind globally, the United States has become the world’s largest oil producer. A shale boom has seen the reigning superpower become a net exporter of oil for the first time in decades.

Nonetheless, the rise in bankruptcies is not something to completely ignore. A number of large firms have struggled in recent years, as well as newly-established ones. Weatherford International, for example, an oilfield service company filed for Chapter 11 bankruptcy in July last year with debts of more than $7bn (£5.3bn,€6.3bn). The 79-year-old firm has since emerged with $6.2bn of outstanding funded debt and $2.6bn in exit financing facilities.

A global surplus of oil has helped the market through the September attack on Saudi Arabia’s oil facilities and the recent disruption to Libyan crude production. It is hoped that this glut will also sustain the oil market even as the pressure on Chinese industry and markets grows in light of the coronavirus.

Haynes and Boone argued in their report that America’s booming oil output has contributed to President Donald Trump’s recent decision-making in foreign policy. Buddy Clark, a partner at the firm, stated: “That’s why you can bomb a major oil facility in Saudi Arabia or kill an Iranian general or shut in all Libyan oil production and prices don’t move.”

FURTHER READING: Stocks stabilise as China moves on virus but glum forecast dents oil

FURTHER READING: How Middle East conflicts have affected oil markets in the past

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