US Shale Players Pumping Oil Stronger Than Ever Despite Bankruptcies

Over 50 North American oil and gas producers filed for bankruptcy since early 2015.

Despite over 50 North American oil and gas producers filing for bankruptcy since early 2015, Reuters has found that this has had negligible effect on U.S. production, with beleaguered drillers pumping harder than ever.

Reuters cites as an example Texas-based Magnum Hunter Resources, which filed for creditor protection last December and whose oil and gas production rose by nearly a third between mid-2014 and late 2015.

Gary Evans, CEO for Magnum, was quoted as saying that the bankruptcy provided his company with new funds to stay operational and could help position it "as a market leader."

The reason for this bullishness, according to restructuring specialists, is that continued full-tilt production allow creditors to recover some of what they are owed – and for companies looking to sell, operating wells are valued more than idle ones.

Additionally, gains in productivity mean that many companies were said to be able to still keep pumping unless oil prices drop to below $20 per barrel.

Reuters notes that this activity "belies the notion that deepening financial distress will prompt a sudden output decline or oil price rebound."

Moreover, with regards to the prospect of other companies going bust, Bill Costello, a portfolio manager at Westwood Holdings Group, says, "I could see (bankruptcies) as a marginal contributor to lower supply, but if you ask me could it ever move the needle, the answer is no."

Indeed, even with over 100,000 jobs lost in the U.S., slashed spending, and 75 percent of rigs inactive, the Energy Information Administration predicts output will drop only 7 percent this year to 8.7 million barrels per day.

Reuters believes that lack of spending may be more troublesome than bankruptcies, a view shared by the International Energy Agency, which last month predicted that global oil exploration and production capital expenditures will fall 17 percent this year - which will impact oil price rallies in the near term and cause price spikes further down the road.