The low oil prices and drastically reduced fracking activity in North America claimed another victim as oilfield services provider BJ Services filed on Monday for Chapter 11 bankruptcy protection.
Texas-based BJ Services, a provider of hydraulic fracturing and cementing services, operates in every major basin in the U.S. and Canada, but it is feeling the sting from the uncertainty on the commodity markets and the significantly reduced demand due to the COVID-19 pandemic.
“Despite maintaining a leading market position and strong client support, the severe downturn in activity and subsequent lack of liquidity resulted in an unmanageable capital structure. After exhausting every possible alternative to address these issues and improve our liquidity, we have made the very difficult decision to proceed with a Chapter 11 process,” Warren Zemlak, President and CEO of BJ Services, said in a statement.
As part of the Chapter 11 process, BJ Services plans to sell its assets, and is in active discussions with bidders regarding both its cementing business and portions of its fracturing business.
BJ Services is the latest company in the U.S. oil patch to have sought bankruptcy protection after oil prices and oil demand crashed in March due to the pandemic and the brief spat between Saudi Arabia and Russia which resulted in the Saudis flooding the market with oil in April, when global demand was at its weakest.
California Resources, the largest oil driller in the state, filed for Chapter 11 bankruptcy protection last week.
Analysts and legal professionals expect more energy bankruptcies in the U.S. shale patch in the coming months even as WTI Crude prices more than doubled to $40 a barrel from the average in April.
In the last week of June alone, several companies filed for Chapter 11 protection, including fracking pioneer Chesapeake Energy, the biggest victim of the price crash so far and the most prominent example of the U.S. shale industry’s modus operandi of the past few years—borrow to drill.
“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. In the second quarter of 2020, 18 producers filed bankruptcy compared to only five who filed in the first quarter,” law firm Haynes Boone said at the end of June.
By Charles Kennedy for Oilprice.com
