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US oil drillers headed for imminent financial collapse due to suppressed oil prices

December 28, 2015

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Source of report here.

The collapse in the price of oil and gasoline due to major increases in global supply has been a financial boon to tens of millions of cash-strapped Americans still struggling to earn a living in a stagnant economy.

But while consumers are breathing a sigh of relief, many oil producers are increasingly worried that they won’t survive the nosedive in prices, since many of their operations were launched with the belief that prices would remain above a certain level.

As reported by Bloomberg News, a number of oil drilling firms are likely to go under in the second quarter of 2015 if there remains a glut of oil worldwide, which is driving prices down.

The news site reported:

Oil drillers will begin collapsing under the weight of lower crude prices during the second quarter and energy explorers who employ them will shortly follow, according to Conway Mackenzie Inc., the largest U.S. restructuring firm.

Cash flows are drying up as well

Companies that drill for oil and then manage oil fields on behalf of producers will be the first to succumb following swooning prices for West Texas Intermediate, a benchmark American crude oil which has lost 57 percent of its value over the past seven months, John T. Young, whose firm directed Detroit through its bankruptcy in 2013, told Bloomberg News.

Already, oil companies have cut thousands of jobs and put off launching billions of dollars worth of projects, while either dropping or scaling back plans to expand as prices remain in the cellar.

And, for oilfield service providers that line holes with steel and cement and conduct testing on wells, Young says the impact of lower oil prices on those firms will really start to bite in the April-June time frame.

“The second quarter is going to be devastating for the service companies,” Young told the financial news service from his office in Houston. “There are certainly companies that are going to die.”


From → World Watch

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