Jul 13, 2020 - Economy

Low oil prices still spell financial danger for many producers

Data: Federal Reserve Bank of Kansas City; Chart: Axios Visuals
Data: Federal Reserve Bank of Kansas City; Chart: Axios Visuals

Oil patch bankruptcies are piling up and prices are still in the financial danger zone for a significant amount of producers despite some recovery, per a Kansas City Fed survey.

Why it matters: The finding from the bank — whose region includes the producing states of Oklahoma, Wyoming and Colorado — underscores the sector's peril.

  • The Kansas City Fed report came on the heels of the latest tally of industry insolvencies from the law firm Haynes and Boone.
  • They found that 18 producers filed for bankruptcy in the second quarter, up from five the prior quarter and the most since Q2 of 2016, when companies were reeling from the last bust.

Driving the news: The Kansas City Fed survey, released Friday, finds ...

  • "Over two-thirds of firms reported they could survive more than a year if current revenues were to continue, while around 32% would not survive a year if current revenue levels persist."
  • "A majority of firms in our survey applied for and received SBA PPP loans, but low energy prices have hurt profitability."

What's next: More Chapter 11 filings. Prices for WTI, the U.S. benchmark, have been hanging around the $40-per-barrel range for the last month, far higher than the depths of April's collapse but ... they are still a problem.

  • It's "not a sufficient clearing price for many heavily leveraged shale producers," Haynes and Boone note in the report.
  • "It is reasonable to expect that a substantial number of producers will continue to seek protection from creditors in bankruptcy even if oil prices recover over the next few months."
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