NEW YORK (Reuters) – U.S. shale producers, refiners and pipeline companies are scrambling for cash and face likely restructuring as they struggle under heavy debt loads and a dual supply/demand shock in the worst crisis the oil industry has faced.
FILE PHOTO: Pump jacks operate at sunset in Midland, Texas, U.S., February 11, 2019. REUTERS/Nick Oxford/File Photo
Fuel demand has tumbled roughly 30% worldwide due to the coronavirus pandemic, and just as the health crisis worsened a price war between Russia and Saudi Arabia flooded markets with crude. The industry was already struggling to satisfy investors unhappy with weak returns, even as the United States surged to become the world’s largest oil producer in the last few years.
That perilous position was before U.S. prices crashed deep into negative territory on Monday, as much as $38 per barrel in the red. This sudden rout came despite substantial spending and output cuts having already been announced by U.S. producers, and reflected a price environment well below levels that companies and advisors had modeled in worst-case scenarios, according to energy lawyers.
Approximately half of the top 60 independent U.S. oil producers will likely need to review options for securing more liquidity, according to energy lawyers at Haynes and Boone.
“The reverberations from this price collapse will be felt throughout the industry and by everyone who provides services to the industry,” said Buddy Clark, an Houston-based partner at the firm.
Companies that used debt to fund acquisitions before prices crashed, such as oil giant Occidental Petroleum Corp (OXY.N), are focusing on placating shareholders and preserving cash.
Numerous midstream companies backed by private equity are in danger of bankruptcy, according to s