Donald Trump promised Tuesday to come to the aid of the oil and gas sector, ravaged by the vertiginous fall in the prices of a barrel of oil, bankruptcy lying in wait for hundreds of already heavily indebted companies. “We will never give up on our major American oil and gas industry,” said the President in a tweet.
He therefore wants to make “funds available so that these very important companies and jobs will be guaranteed for a long time in the future”.
We will never let the great U.S. Oil & Gas Industry down. I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!
– Donald J. Trump (@realDonaldTrump) April 21, 2020
Donald Trump did not specify how much money, or which companies could claim it. “The president is determined. We want to maintain our energy independence and the president asked me to study all the options, ”said Treasury Secretary Steven Mnuchin on Tuesday evening.
The entire hydrocarbon sector is suffering from the pandemic. With the containment measures imposed to stop the spread of Covid-19, both transportation and factories froze. The demand for gasoline or kerosene has collapsed.
Reserves explode, insufficient storage
But the production takes time to adjust. Especially in the United States where the energy sector is fragmented into a multitude of large and small companies which, in the name of competition laws, do not have the right to coordinate.
Result: the reserves explode. And due to the lack of sufficient storage space in the United States, some investors were forced to pay to get rid of the barrels of WTI listed on New York which they held on paper and which were likely to materialize in their backyards. they did not part with it in time.
This quality of crude closed on Monday at -37.63 dollars (36.50 francs) per barrel. The other contracts of WTI or Brent, listed in London, have also lost more than two thirds of their value since the beginning of the year.
Not encouraging
If investors seem to be betting on a price recovery in the coming months, the situation is far from encouraging, according to Stewart Glickman of CFRA. “The contract for delivery in April 2021 has a price of around $ 33, which is below the level of profitability for many exploration and production companies,” he told AFP. “Those who survive are the ones with the strongest financial backs.”
Companies in the sector have indeed benefited greatly from very low interest rates in recent years and from the willingness of financial players to lend them money to go into massive debt. This has enabled the United States to become the world’s leading producer of black gold.
But where can we get the money now to pay off the loans? “To survive, they can issue new shares, but their price is so low now that it’s not worth it,” says Stewart Glicksman.
Small producers
“They can issue bonds but they compete with so many other companies that they would have to accept an absurd level of interest. They can also borrow from banks that take their oil reserves as collateral, but these are not worth much at present, ”he adds.
According to him, the first victims will probably be the very small producers, who extract 10 to 15 barrels a day. “There are thousands of them across the United States which together account for about 8% to 10% of US crude oil production.” “Then there will be companies listed on the stock market whose debt-to-capital ratio is 35% or more” and who may have trouble paying interest.
“The exploration and production sector is so indebted in the United States that current prices are likely to create the largest number of bankruptcy filings ever recorded in modern history,” Rystad wrote. in a note in early April.
Of the 9,000 companies in the sector, if the barrel remains at 20 dollars, about 140 could go bankrupt in 2020 and almost 400 in 2021, had then predicted its experts.
Bankruptcy filing
Whiting Petroleum Corporation, which specializes in shale deposits in North Dakota and Colorado (west), already filed for bankruptcy in late April. And several major oil majors have drastically revised their spending down.
On the side of refineries, which buy crude to transform it, the low prices do not necessarily make good deals, notes Marc Amons of the cabinet Wood Mackenzie. The drop in demand for gasoline and kerosene has “sharply lowered the margins of refiners and they have therefore lowered refined volumes,” he explains.
Refineries have drastically lowered their production rates and are now working at 60% or 70% of their capacity, where usually, at the approach of major summer vacation trips, they are over 90%. But they probably do not count especially on government aid to get out of it, says Marc Amons. Like the rest of the sector, “they are mainly waiting for a recovery in demand as the restrictive measures are lifted.”
(dpa / nxp)
Created: 22.04.2020, 01h10
–
