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Higher Oil Prices Reduce North American Oil Bankruptcies

 

Higher oil prices are letting North American oil and gas companies dodge bankruptcy announcements, according to an analysis conducted by the Dallas-based law firm Haynes and Boone.  

This year, only 20 companies on the continent have declared bankruptcy—there were three times more than that last year.

So far, the oil price crash of 2014 has caused 134 oil exploration and production companies to go under so far, but prices have risen above $60 a barrel this year, buying some underperforming companies times to shape up.

Oil field services companies still face the brunt of the price bust, with 43 of them declaring bankruptcy this year. Still, that’s an improvement from 71 bankruptcies last year.

Haynes and Boone says 310 oil producers, oil field services companies, and midstream firms have gone under since the top of 2015, just months after the initial crash.

North American shale oil and gas companies have proven that they can adapt their business model through the lower crude oil prices cycle. Now, American shale producers might have to adjust their financial strategy when the Federal Reserve (Fed) raises interest rates.

U.S. shale oil production has increased multifold to 4.25 million bpd in 2016. The rapid growth in nonconventional production methods (fracking) bloated soon after U.S. interest rates tumbled to record lows—making money very cheap and readily available to be pumped into any projects returning figures higher than the depressed cost of borrowing, even with oil prices trading below $60 per barrel since July 2015.

The cost of doing oil business is poised to rise along with the Fed’s inevitable campaign toward ‘rate normalization’ in the world’s largest economy, as it continues to show signs of growth following its rising inflation figures.

 

 

- Zainab Calcuttawala, Oilprice.com, 2017 November 17.

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