The carnage from low oil prices is about to get even uglier.
Conway McKenzie, the largest restructuring firm in the US, says that oil drillers will begin shutting down as soon as the second quarter, followed closely by explorers, according to Bloomberg’s Joe Carroll.
The game changed when on January 5, crude broke $US50 per barrel for the first time since April 2009 when the economy was in recession. Here’s what Conway’s John T. Young told Bloomberg:
“When I saw WTI hit $US65, I thought we’re going to be really busy with restructurings … When it hit the $US40s, I knew we were looking at outright liquidations.“
Young also said oil drillers need to check whether the producers they work for have a financial plan in case their future cash flow falters.
On Thursday, WTI fell as low as $US46.26 per barrel. The Energy Information Administration reported that US crude inventories last week were the highest in 14 years.
Morgan Stanley had said in an note that investors will only really begin to see the impact that cheap oil is having on energy profits as from the second quarter.
And as a reminder, here’s the dizzying chart from Citi that shows the breakeven point for every international oil company project through 2020.
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