Bankruptcies in the North American oil patch “have substantially picked up pace” so far in 2020, due largely to the impact of Covid-19 on prices and demand, according to a new report published Tuesday by Haynes and Boone LLP.

The Dallas-based international corporate law firm has been tracking bankruptcy filings in the exploration and production (E&P) sector since 2015.

Although U.S. oil prices have recovered to the $40 range since briefly plunging negative in April, “the relatively flat price curve for future periods may not be a sufficient clearing price for many heavily leveraged producers,” the report’s authors said, adding, “this latest downturn not only affects smaller recently hatched shale producers, but July saw two of the largest filings involve well established oil companies,” a reference to California Resources Corp. (CRC) and Denbury Resources Inc.

Together, CRC and Denbury account for more than $7.7 billion in aggregate secured and unsecured debt, the Haynes and Boone team said.

“The recent resurgence of confirmed Covid-19 cases in the U.S. and abroad would indicate that any near-term sustained demand growth is unlikely to prop up world oil prices higher,” they continued, forecasting that “lower for longer remains the watchword for producers and their creditors.”

Other high-profile bankruptcies this year include Lower 48 onshore heavyweights Chesapeake Energy Corp. and Whiting Petroleum Corp., whose debt loads stand at $9.17 billion and $3.57 billion, respectively.

“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,” the report’s authors said. “In July, nine producers filed, which, combined with the rest of the filings this year, represents a 66% increase over this time last year.

“It’s not quite the level of filings reached in 2016 but a disturbing trend nonetheless.”

According to Haynes and Boone, 240 producers have filed for bankruptcy over the five-year period as of July 31, involving more than $171 billion in aggregate debt, with more than $49 billion so far in 2020.

Not Just Onshore, Not Just Producers

Recent days have shown that it’s not just the onshore segment that’s struggling, with Gulf of Mexico giant Fieldwood Energy LLC announcing last week that it’s seeking relief under Chapter 11 as well.

The oilfield services (OFS) and midstream segments are facing the same unprecedented turmoil, Haynes and Boone said, noting that OFS firms are especially vulnerable to the downturn.

OFS bankruptcy filings declined in number (33 filings) and aggregate debt ($11.9 billion) in 2018-2019 versus 2017 (about 40 filings and aggregate debt of $35 billion), Haynes and Boone team said in a separate report.

However, “with immediate cutbacks in producers’ capital expenditure (capex) budgets for drilling, completions and other activities in the field, oilfield service companies will feel the brunt of this impact,” the report said. “Many smaller or highly leveraged OFS companies may not be able to hold on, avoiding seeking protection of the bankruptcy courts.”

The midstream segment, meanwhile, “has not suffered the same level of distress experienced by E&P or oilfield services companies,” Haynes and Boone said.

However, researchers said, “it is likely that a number of midstream companies may need to seek protection of the bankruptcy courts over the remainder of 2020” amid the current turmoil.