[Editor's note: A version of this story appears in the April 2021 issue of Midstream Business magazine.]

The 2020 market downturn has precipitated the third, and in some respects the worst, bankruptcy event to rock the oil and gas sector in the past five years. A total of 41 energy companies with $56.3 billion in combined debt entered Chapter 11 in 2020, according to data from law firm Haynes and Boone LLP and East Daley Capital’s research.

East Daley’s accounting of the year’s bankruptcies is comprised entirely of E&P companies. COVID-19-related market disruptions in the March-to-June period caused unprecedented volatility, including negative oil prices in April, and sparked the latest industry bankruptcy wave.

Boom-and-bust cycles also are shorter than ever, reflecting both high leverage in the upstream space and the potential for rapid supply growth and oversupply from shale development. The midstream sector will exit 2020 with no bankrupt names but far from unscathed, contending with the collateral uncertainty of counterparty and rate risks owing to the many upstream bankruptcies in Chapter 11 litigation.

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