The oil and gas industry will lead others in corporate defaults in 2021 and is likely to fail to make $15 to $18 billion in bond payments this year, ratings agency Fitch has predicted.
The amount is more than twice as many companies in health care and manufacturing are expected to miss; those sectors are the next riskiest, Fitch said.
Thirty-five percent of Fitch’s list of “bonds of top concern” is made up of oil and gas producers, particularly smaller companies that produce 25,000 to 35,000 barrels of oil a day.
“Low crude oil prices coupled with capital market accessibility will hamper many of the weaker energy issues in 2021,” Eric Rosenthal, Fitch’s senior director of leveraged finance, said to the Financial Times.
About 7 to 8 percent of the industry’s bonds will go unpaid, Fitch forecasts, far below the 15 percent that were delinquent in 2019 but almost twice the historical 4.4-percent average.
The global economic shutdown slashed oil demand and prices in an already-glutted market last March, just as dozens of companies in shale oil plays had bonds begin to come due.
When producers needed more money to pay their debts, they suddenly had far less, triggering dozens of bankruptcies, including high-flying players such as Chesapeake Energy and Whiting Petroleum.
TREND FORECAST: While oil prices have spiked some 5 percent and Brent Crude is trading at $53.57 a barrel, minus a wild card event such as the conflict in the Middle East, with the global economy going down, so too will oil prices. In fact, Moody’s predicts oil prices will range about $45 dollar this year, which will be too low for many producers, particularly in shale plays, to remain solvent, much less show a profit.
