Illustration: Aïda Amer/Axios

Oil companies in the battered shale patch are starting to bring back some production as prices climb, but a new report underscores how the pandemic is taking a heavy financial toll despite signs of revival.

Driving the news: Fourteen North American producers have filed for bankruptcy thus far during the second quarter, per a tally from the law firm Haynes and Boone, which closely tracks the sector's finances.

  • That's up from five in the first quarter, and there's more to come, the firm projects in the report, which also notes numerous bankruptcies in prior years in the sector where many companies have precarious finances.
  • "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," the firm finds.
  • Contractors are also getting battered by industry spending cuts, with many small or highly indebted oilfield serviced companies at risk.

The big picture: The report comes as some companies begin bringing back into production some wells shut down during the worst of the price and demand crisis.

  • Shale producers EOG Resources and Parsley Energy this week announced plans to restore output cuts, Reuters reports.
  • U.S. oil prices, which went into negative territory in April, have rebounded to roughly $36 per barrel. CFRA Research analyst Stewart Glickman tells Bloomberg that prices in the mid-$30s mean that "you’re closer to some break-even point. That’s enough to relax the shut-ins.”
  • But break-even prices vary by producer, and they're still likely too low to keep some companies above water, especially given the heavy debt load many companies were carrying even before the crisis.

What's next: While some of the shut-in wells are returning, there's been an extremely steep drop off in new drilling activity as prices are too low to make new wells profitable.

And existing shale wells decline quickly, so the shut-ins combined with the collapse of new drilling means U.S. production is heading sharply lower and industry investment is dropping off a lot.

  • U.S. production has already fallen sharply from nearly 13 million barrels per day early in the year.
  • The federal Energy Information Administration sees output falling well below 11 million barrels per day later in 2020 and staying there in 2021, while some analysts see ever deeper declines.

Go deeper

Ben Geman, author of Generate
Sep 9, 2020 - Energy & Environment

The yin-yang of Trump's drilling policy

Photo: Alex Wong/Getty Images

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Driving the news: Trump used a Tuesday stop in Florida — a swing state with a huge electoral vote bounty — to announce an order that keeps the eastern Gulf of Mexico off-limits through 2032.

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The state of play: Justice Clarence Thomas administered the oath. The Supreme Court wrote in a statement that Barrett will take the judicial oath on Tuesday, at which point she will be able to begin her work on the court.

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Hurricane Zeta's forecast path. Photo: National Hurricane Center

Louisiana Gov. John Bel Edwards (D) declared a state of emergency Monday as Zeta strengthened into a hurricane and threatened Mexico's Yucatan Peninsula as it moved towards the U.S. Gulf Coast.

The state of play: Zeta was expected to make landfall on the northern part of the Yucatan Peninsula Monday night, bringing with it a "dangerous storm surge" and "heavy rainfall" as it moved into the Gulf of Mexico, the National Hurricane Service said.

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