As the oil and gas sector emerges from a tumultuous first half of 2020, an energy consultancy group warns the worst could be far from over for E&P companies.

Despite already surviving a global oil price war, COVID economic shock and crude’s first trade below zero, Rystad Energy forecasts an exponential increase in the number of North American E&P bankruptcy filings by year-end 2022.

“While an improvement in oil prices towards $40 per barrel WTI saved a significant number of E&Ps and prevented early Chapter 11 filings in June-July,” said Artem Abramov, Rystad Energy’s head of shale research, “the current price environment is in no way sufficient for a large number of E&Ps in the medium-term.”

Even at $40 WTI, about 150 more E&Ps in North America will need to seek Chapter 11 protection through 2022, according to Rystad Energy analysis.

More than 50 oil and gas firms have filed for bankruptcy since oil prices crashed in March, according to the most recent report by Haynes and Boone LLP, which noted E&P filings at 32 for the year as of July 31. The law firm estimates the amount of cumulative debt held by bankrupt E&P companies stands at about $40 billion.

In a scenario with WTI continuing to hover around $40 over the next two years, Rystad expects another 68 Chapter 11 filings from E&Ps in 2021, and 57 more in 2022.

North American E&P Chapter 11 case and debt scenarios by year and WTI price (Source: Rystad Energy)

Rystad said its E&P Chapter 11 model is based on a cash flow analysis covering about 10,000 active North American oil and gas E&Ps. The model is designed to present a macro-level outlook rather than look at individual company insights, as the capital structure for a majority of small and private E&Ps is based on assumptions and matches the actual number of Chapter 11 cases.

If WTI price levels remain largely unchanged and Rystad’s Chapter 11 forecasts materialize, this would bring the total number of North American E&P filings for 2020-22 to nearly 190, compared to 207 during the five-year period of 2015-19. That would also bring total Chapter 11 North American E&P debt for 2020-22 to about $168 billion, 36% higher than the $122 billion recorded in 2015-19.

“As hedging programs set at WTI $50-plus per barrel expire in the second half of this year, we anticipate greater financial pressure on the industry unless WTI prices recover further,” Abramov continued in the statement.