US Shale Companies Hit Hard by 'Oil Price War'... Fears of Mass Bankruptcies Become Reality

Low Oil Prices, Overdevelopment, and the Triple Disaster

Major Companies' Stock Prices Plunge Up to 45%

[Asia Economy Reporter Kwon Jaehee] North American shale gas companies have been hit hard by the oil price crash. Concerns about mass bankruptcies among shale companies had been growing due to prolonged low oil prices and overdevelopment since last year, but with the added oil price war between Saudi Arabia and Russia, they are now facing a triple disaster. It is being evaluated that the fears of mass bankruptcies among North American shale companies have materialized.

According to the New York Stock Exchange closing on the 9th (local time), the stock price of shale development company Pioneer Natural Resources plummeted 37%. Texas oilfield developer Diamondback Energy's stock price plunged 45%, while major oil refining companies such as BP and Shell also saw their stock prices fall by 20% and 18%, respectively. ExxonMobil and Chevron also dropped more than 10%. This was largely influenced by the April delivery West Texas Intermediate (WTI) crude oil price crashing more than 24% that day, barely holding at the $30 per barrel level. This is far below the $50 per barrel breakeven point for shale companies.

As international oil prices plummeted, the risk of mass bankruptcies among North American shale companies has become a reality. Many companies have deteriorated financial conditions due to the excessive shale boom, and with global demand shrinking due to COVID-19, including in China, the situation has reached a critical point. Ian Neighbour, Head of Macroeconomic Research at shale data provider Enverus, described it as "a financial crisis in the oil industry," commenting that "dozens of small shale companies have already faced bankruptcy."

The Wall Street Journal (WSJ) reported, "The biggest victims of the oil price war between Russia and Saudi Arabia are U.S. shale companies," adding that "shale companies will cut costs by reducing workforce and drilling equipment to avoid bankruptcy."

Many shale companies have already begun reducing personnel and equipment. Diamondback Energy, facing bankruptcy, announced it would cut 2 out of every 9 workers involved in production and dispose of drilling machines. Texas oil producer Parsley Energy also plans to reduce drilling personnel from 5 to 3 and dispose of 3 out of 15 drilling rigs.

If the 'chicken game' between Saudi Arabia and Russia intensifies, energy companies are expected to be pushed into even more difficult situations. Most energy companies currently hold credit ratings at 'BBB,' just above non-investment grade. If the oil price war escalates, cash flow will come under severe pressure, and even a one-notch downgrade in credit rating will sharply increase financing costs.

This content was produced with the assistance of AI translation services.