Pioneer CEO: Half of US indies may go bankrupt
OREANDA-NEWS. About half of US independent producers are likely to file for bankruptcy this year amid a prolonged oil market weakness, Pioneer's chief executive Scott Sheffield said.
Inability to sell assets, a lack of merger and acquisition (M&A) opportunities because of high levels of debt, limited cash flow and weak forward prices will all push producers towards bankruptcies, chief executive Scott Sheffield told Argus on the sidelines of the IHS CeraWeek conference in Houston.
"Asset sales will take off later, maybe next year once we see prices improve to around $40-$50/bl," he said. "But we will see a lot of companies going bankrupt this year, about half of them."
Sheffield also cautioned that the sharp pullback in activities by oil companies, particularly shale producers, will lead to a sudden spike in prices toward the end of the decade as supplies continue to fall to levels that lag demand.
"The shale industry will need two to three years to come back up," he said.
Up until last year, producers enjoyed a cushion from their hedge positions, which have rolled off, exposing most to a market to crude prices near 13-year lows. Producers big and small are hunkering down by making sharp cuts to their spending, shedding assets and raising funds by either tapping debt or equity market. But the prolonged weakness has rendered all those initiatives inadequate.
Pioneer, one of the most resilient independent shale producers, added rigs in the second half of last year when the industry halved their rig count. But it has finally had to change tack, saying earlier this month it would cut the number of active rigs by 50pc to 12 by mid-2016, and aims to lower 2016 spending to $2bn from $2.2bn last year.
David Hager, chief executive of independent producer Devon Energy, said $30/bl just doesn't work for even the most efficient producers. Both Sheffield and Hager said that the US shale industry needs $40-$50/bl just to keep output flat.
Devon is cutting spending on exploration and production by 75pc in 2016 to $900mn-$1.1bn. It also plans to cut personnel in the first quarter by a fifth, resulting in an annual savings of $400mn-$500mn. The company's dividend was slashed to 6?/share from 24?/share in the 2015 third quarter. Devon also plans to shed $2bn-$3bn in assets to cope with drastically lower energy prices.
Among the challenges the industry will face restarting operations is bringing back the manpower that have been made redundant by producers and oilfield services companies.
"We are making sure we survive and take advantage when the market recovers," Hager said said at the conference. "People are going to be an issue when we are ready to ramp back up."
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