‘Worst is Yet to Come’ as Fossil Bust Exceeds 2002 Telecoms Crash
The epidemic of North American oil and gas industry bankruptcies now outranks the 2002-03 telecoms crash in dollar losses and company debt restructurings—and it may only be at the half-way point.
As of May 17, at least 70 oil and gas companies had filed for creditor protection during the current industry slump—more than the 68 filings that happened during the telecoms bust, according to Reuters, the Haynes and Boone law firm, and bankruptcydata.com.
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The loss of US$1.02 trillion in the value of energy sector shares since 2007 already exceeds “the $882.5-billion peak-to-trough loss in market capitalization from the U.S. telecommunications sector in the early 2000s,” Reuters reports, adding that the industry’s debt-holders will face additional losses. U.S. oil and gas companies issued about $175 billion in junk bonds during the boom years—roughly 10 times the $18 billion of similarly-rated bonds issued by telecoms during their heyday.
Charles Gibbs, a restructuring partner at Akin Gump in Texas, said the worst is yet to come: “I think we’ll see more filings in the second quarter than in the first quarter,” he told Reuters. Moody’s Investors Services earlier forecast that a third of companies in the sector would not survive 2016.
The two sectors’ boom and bust cycles, “have notable parallels,” Reuters writes. “Pioneering technology brought an influx of investment to each industry, a plethora of new, small companies issued high levels of debt, and a subsequent supply glut sapped pricing just as demand fell sharply.”