Nineteen North American exploration and production (E&P) operators have filed for bankruptcy protection since the start of the year, and it is “reasonable to expect” more companies will seek protection from creditors in the months to come, according to Haynes and Boone LLP.

The law firm has monitored North American oil and gas producer bankruptcies since 2015. It issued its latest report on Wednesday, noting that five filed for Chapter 11 in 1Q2020 and 14 more have sought protection to date in the second quarter.

“Following a steep drop in oil prices in the fourth quarter of 2018, the number of filings started trending up in 2019,” the firm said. “At the end of last year, we were predicting that this trend would continue into 2020 based on expectations that oil prices would remain in the $55-60/bbl range. Since January, however, oil prices have fallen from $63/bbl to a one-day drop into negative territory closing at minus $36/bbl on April 20.”

The end of May saw oil prices rebound into the $30/bbl range in part on an increase in economic activity following the pandemic-related lockdowns, but the price is not a “sufficient clearing price for many heavily leveraged shale producers,” and “lower for longer” is the watchword for E&Ps and creditors.

“It is reasonable to expect that a substantial number of producers will continue to seek protection from creditors in bankruptcy even if oil prices recover over the next few months,” according to Haynes and Boone.

Lower 48 E&Ps seeking Chapter 11 protection this year include Templar Energy LLC, Ultra Petroleum Corp., Unit Corp. and Whiting Petroleum Corp. Offshore operators that have sought protection to date this year include Diamond Offshore Drilling Inc. and Hornbeck Offshore Services Inc.

“As we near the end of the second quarter of 2020, extreme financial pressure is being felt at all levels of the energy industry,” said Haynes and Boone. “Producers, gatherers and other midstream companies, refiners and marketers are abruptly adjusting to the ”new normal’ in a post-Covid-19 world.”

Oil demand is improving, the Energy Information Administration (EIA) said Wednesday. In its Weekly Petroleum Status Report for the week ending Friday (May 29), EIA said U.S. refinery inputs averaged 13.3 million b/d, which was 316,000 b/d higher week/week.

Refineries operated at 71.8% of their operable capacity, and gasoline production increased, averaging 7.8 million b/d. U.S. oil imports averaged 6.2 million b/d last week, down by 1.0 million b/d week/week.

“Over the past four weeks, crude oil imports averaged about 6 million b/d, 18.3% less than the same four-week period last year,” EIA said. “Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 782,000 b/d, and distillate fuel imports averaged 163,000 b/d.”

Domestic commercial crude inventories, excluding in the Strategic Petroleum Reserve, declined by 2.1 million bbl week/week. At 532.3 million bbl, EIA estimated U.S. crude inventories were about 12% above the five-year average for this time of year.

“Oil prices have been working their way up from the epic trough set in mid-April,” analyst Pavel Molchanov of Raymond James & Associates Inc. said Wednesday.

There are three key drivers for the bounce, he said, with two being the large production cut by the Organization of the Petroleum Exporting Countries and its allies, and well shut-ins in the Lower 48.

“Third, and most importantly, the Covid-19-related disruptions in transportation and economic activity continue to subside,” Molchanov said. Of the 4.28 billion people who were under a lockdown at some point since January, “4.15 billion (97%) already have some reopening.

“If we define conclusion of reopening as everything up to and including all retail and restaurant dining rooms, for at least a substantial portion of any given jurisdiction, that total currently stands at 3.15 billion (74%).”

The recovery in transportation has been confirmed by traffic congestion data, said the Raymond James analyst, along with commentary by refiners.

“While it would not be realistic for demand to get back to pre-Covid levels until 2022, it seems clear that the impact peaked in April, with June set to be better than May, the third quarter better than the second quarter, and the fourth quarter better than the third quarter.”