Crude Summit: More US oil bankruptcies loom

A third of US oil and gas companies with the weakest balance sheets are at risk of bankruptcy amid a precipitous drop in crude prices, Wolfe Research managing director Paul Sankey said.

"What matters now is the balance sheet and rock quality," Sankey said at the Argus Americas Crude Summit in Houston. Those with stronger balance sheets and more viable reserves of drilling acreage are in better shape, he said.

Nymex February light, sweet crude yesterday settled at $26.55/bl, a 12-year low. However, prices could hit $100/bl by 2018 as a drilling slowdown sets the stage for future shortages, he said.

"We are going into a significant underinvestment cycle. I think we are going to 100 [dollars per bl] by 2018. But this year will be a disaster," he said.

The world is entering a new age driven by electricity and away from crude, including a major shift to electric vehicles by 2018-2019, he said.

"My view is it's the end of the oil age. The 20th Century was the oil age and the 21st Century is the age of electricity," he said.

Other analysts forecasted a sharp increase in mergers and acquisitions.

So far, there have been no cuts in the value of oil and gas reserves of companies largely because of hedges and banks have been lenient, but banks will take a harder line going forward, said global oil and gas transactions leader at Ernst & Young Andy Brogan.

"We do see an increase in liquidity pressure coming from that environment," he said.

Brogan forecasted more mergers and acquisitions in the oil sector in the coming year. Such activity was delayed in 2015 because of a valuation gap, where the rate of innovation was so fast that it was difficult to value on what producers were likely to do. But there is external pressure coming up. It will likely be a slow build-up and then a very rapid spike, he said.

Panelists also predicted continued cuts in US production.

If current WTI benchmark prices stay at around $30/bl, US shale output will drop by 700,000 b/d this year, said head of analysis at Rystad Energy Per Magnus Nysveen.

The prediction is similar to a forecast by the US Energy Information Administration (EIA).

US output should drop steadily to 8.5mn b/d in November 2016 from about 9.2mn b/d in December, the EIA said in its most recent Short Term Energy Outlook. The 700,000 b/d drop this year would be the first annual decline since 2008. Crude output in major US shale basins will fall by 116,000 b/d to 4.83mn b/d from January to February, the agency said.