One out of three fossil companies may not survive 2016, warns auditing and consulting firm Deloitte, in a forecast that adds to a cascade of bad news for the industry. Last Friday, Moody’s Investors Service downgraded eight of the first 11 companies it examined in an ongoing review of oil and gas producers.
“These companies have kicked the can down the road as long as they can and now they’re in danger of kicking the bucket,” William Snyder, Deloitte’s head of corporate restructuring, told Reuters. “It’s all about liquidity.” Collectively, the companies in the Deloitte review faced US$150 billion in debt.
Deloitte based its forecast on reporting from more than 500 publicly traded companies in the oil and natural gas exploration and production sectors. It found “deep unease permeating the energy sector as crude prices sit near their lowest levels in more than a decade, eroding margins, forcing budget cuts and thousands of layoffs.”
The review identified some 175 companies at “high risk” of bankruptcy, Reuters reports, “as low commodity prices crimp their access to cash and ability to cut debt.”
The $150 billion in debt cited in the Deloitte report is a small fraction of the $1.6 trillion the oil industry worldwide is estimated to owe its lenders, according to Oil Change International, or the $6 trillion it has sunk into finding reserves that may never be tapped. The enormous debt, accumulated largely in pursuit of more complex, remote, or difficult-to-process resources, has prompted even the pro-business Financial Times (subscription only) to question whether the oil industry’s business model has become “fatally flawed,” Oil Change reported this week. (h/t to InsideClimate News for pointing us to the Deloitte story)