(Reuters) - More oilfield service companies dismissed workers this week and law firms braced for an onslaught of coming bankruptcies in an industry slammed by slumping fuel demand and crashing prices during the coronavirus pandemic.
Firms that provide oilfield services and equipment had barely recovered from the 2014-2016 downturn before crude oil prices last month plunged to near two-decade lows. Many were already operating on thin margins, and now face customers pushing for deep price cuts.
Houston, Texas-based fracking services company NCS Multistage Holdings is cutting about 80 employees, or 20% of its workforce, while Canadian firm STEP Energy Services also is shedding more than 150 workers in Texas and Oklahoma due to the “drastic downturn in oil,” according to workforce filings.
Eight oilfield providers, with a total of $10.9 billion in debt, have filed for bankruptcy this year, including three since prices fell to $20 a barrel in early March, according a report released on Tuesday by law firm Haynes and Boone. Lawyers anticipate more trouble ahead.
“OFS [oilfield service] companies will feel the brunt of this impact,” the firm’s lawyers wrote, adding “many smaller or highly leveraged companies may not be able to hold on.”
On Tuesday, U.S. crude futures were trading around $25.78 a barrel, up from the low of around $20 but still below the cost of production.
Oil firms operating outside the Permian basin may be particularly hard hit by those prices, according to a survey released on Tuesday by the Federal Reserve Bank of Kansas City, which includes Oklahoma, Colorado, Wyoming, Kansas and parts of New Mexico.
On average, producers in those states need oil prices at $47 a barrel to make money. Most firms surveyed in the report do not expect energy prices to return to profitable levels this year.
“Long term $30 per barrel (oil price) will lead to massive consolidations and insolvency,” one survey respondent said.
Large oilfield firms have cut expenses to adapt to lower demand and prices. French drilling pipe manufacturer Vallourec this week said it was cutting 900 jobs, or one third of its North American workforce, after activity collapsed in the oil and gas industry.
The decision was “necessary in a quickly deteriorating environment,” Chairman Edouard Guinotte said in a statement on Monday.
Halliburton , the largest hydraulic fracturing operator in the United States, on Monday said it was “significantly reducing” its workforce, and its executives agreed to take a pay cut.
Reporting by Liz Hampton; Editing by Paul Simao and David Gregorio
Our Standards: The Thomson Reuters Trust Principles.