Insights > Q3 2020 Oil and Gas Industry Update: What You Need to Know

Q3 2020 Oil and Gas Industry Update: What You Need to Know

Well into the second half of 2020, the uncertainty in the oil and gas market shows little sign of abating.  The timing of crude oil price and demand recovery remains unclear as the lingering coronavirus pandemic continues to weigh heavily on the industry.

According to the International Energy Agency (IEA), global oil supply rose to 91.7 million barrels per day in Q3 2020, following a nine-year low of 86.9 million barrels per day (bpd) at the end of Q2 2020. After OPEC and its allies reduced production cuts from 9.7 to 7.7 million bpd in August, recovery in countries outside of OPEC has stalled. In September, OPEC pumped 24.4 million bpd of crude oil and now expects world oil demand to return to pre-crisis levels of 99.8 million bpd by 2022, after this year’s record 9% slump in global demand. Consistent with the increase in global output, the US Energy Information Administration (EIA) estimated that US crude oil production also rose by 0.2 million bpd to an average of 11.2 million bpd from Q2 to Q3 2020.

The IEA revised its Q4 2020 demand estimate down by 0.6 million barrels per day following a resurgence of coronavirus cases in many countries as well as continued lockdown measures, teleworking, and the weak aviation industry. Overall, it is expected that global oil demand will not recover for at least another 18 months and that there will not be a major price move for oil in the next six months, as demand is projected to remain weak. Although oil demand in China has essentially returned to pre-pandemic levels, oil consumption in the United States and Europe remains weak, while India shows renewed weakness. With the upcoming winter season in the northern hemisphere, the world is in a state of “delicate rebalancing” as the duration of the pandemic remains uncertain.



Crude WTI Q2 2020 vs Q3 2020:
2.4% increase from $39.27 to $40.22


Brent Crude Q2 2020 vs Q3 2020:
0.5% decrease from $41.15 to $40.95


Natural Gas Q2 2020 vs Q3 2020:
44.3% increase from $1.751 to $2.527

Commodity price drivers

West Texas Intermediate (WTI) closed marginally higher at $40.22 per barrel on September 30, compared to $39.27 on June 30. Despite the 2.4% price increase from Q2 2020, WTI closed the third quarter down by 25.6% from $54.07 last year. In contrast to WTI, Brent crude slightly decreased by 0.5%, from $41.15 to $40.95 per barrel over the same period. Per the October 2020 Short-Term Energy Outlook (STEO), the EIA forecasts a Brent crude oil price spread of $2.35 per barrel compared to WTI crude in 2021.

Overall, the gradual climb in the price of oil since May came to a halt in September. At the beginning of the third quarter, national lockdowns eased and an initial recovery in global demand led by gasoline ensued; however, amid growing concerns of another wave of the virus, oil prices leveled out again by the end of September. As any meaningful recovery in consumption has been held back by the pandemic, Goldman Sachs estimates that global oil consumption may only rise by 1.8 million barrels a day by the end of the year. Therefore, the recent increase in COVID-19 cases in some countries, as well as the slowed growth of global oil demand in August and September, have contributed to downward pressure on crude oil prices.

While oil appeared stationary during the third quarter, natural gas increased by 44.3% from $1.75 to $2.53 by the end of September. With a scorching summer and warmer than normal weather in September, natural gas prices experienced positive momentum in the third quarter. EIA estimated that “natural gas consumption for power generation rose to 43.6 billion cubic feet per day (Bcf/d) in July 2020, higher than any other month on record.”

The Baker Hughes rig count summary as of September 25 shows the United States having a total active rig count of 258, which includes 183 oil rigs and 75 gas rigs. This represents a month-over-month increase of six rigs (three oil rigs and three gas rigs) from August, and a year-over-year decrease of 601 rigs (decrease of 530 oil and 71 gas rigs) from September 2019. The slight increase from August to September in the US oil and gas rig count, which is an early indicator of future output, is a result of the brief rebound in crude prices that prompted some US producers to return to the well pad.


Oil Rig Count
Sept 2019 vs Sept 2020: 713 vs 183


Gas Rig Count
Sept 2019 vs Sept 2020: 146 vs 75


Total Rig Count
Sept 2019 vs Sept 2020: 859 vs 258
(70% decrease)

Industry updates

The Railroad Commission of Texas issued a total of 437 original drilling permits in September compared to 796 in September of last year. The breakdown of well types consists of 112 for oil, 41 for gas, 252 for oil or gas, 11 for injection and 21 for other permits. The total well completions processed for 2020 to date for new drills, reentries, and recompletions are 11,917 compared to 7,074 recorded during the same period in 2019.

As oil majors begin to pivot towards green energy, a recent wave of Special Purpose Acquisition Company (SPAC) mergers in the electric vehicle sector has ensued on the expectation that such cars and trucks will soon begin displacing vehicles powered by fossil fuels. In the third quarter, several SPAC deals were announced that are expected to close in the fourth quarter, including Lordstown Motors with DiamondPeak Holdings and electric vehicle start-up, Fisker, with Spartan Energy Acquisition, while Bollinger Motors began notably drawing SPAC interest. To continue the green energy push, California Governor Newsom announced that the state will ban the sale of all new gasoline-fueled cars after 2035.

In addition, Shell announced plans to cut 11% of its workforce as part of its business overhaul plan to shift toward clean energy. Shell expects 7,000 to 9,000 job losses at the company by the end of 2022, which could generate $2 billion to $2.5 billion in annual cost savings. The reorganization is also designed to further Shell’s expanded green ambitions.

Restructuring updates

Despite the relatively swift response from OPEC and its allies to revitalize crude markets by significant reductions in oil production, stagnant oil prices and demand, which have yet to recover, have forced US producers to file for bankruptcy protection into the second half of 2020. The remainder of 2020 will be challenging as companies attempt to pinpoint a new normal, while balancing lower commodity prices with short- and long-term objectives.

According to Haynes and Boone Energy Bankruptcy Reports, as of September 30, 2020, there were at least six Chapter 11 bankruptcy filings in September and approximately 25 filings in the third quarter, which was consistent with the second quarter. A growing and notable trend across the oil and gas industry in recent years has been for companies across the country to file their bankruptcies in the Southern District of Texas (Houston) due to its growing notoriety for the ability to efficiently and effectively handle large bankruptcies.

Dallas-based Bainbridge Uinta, LLC filed for Chapter 11 bankruptcy protection on September 1, 2020.  The company has assets and liabilities between $50 to $100 million and has up to 999 creditors.

Ursa Piceance Holdings, LLC, a Colorado-based natural gas driller, filed for Chapter 11 bankruptcy protection on September 2, 2020 with approximately $283 million in secured debt. In addition to the impacts from COVID-19, the company also cites the regulatory uncertainty in the state of Colorado as an additional factor that hindered the company’s efforts to sell their assets and acquire additional financing in attempts to restructure and avoid a bankruptcy filing.

Energy Alloys Holdings, LLC, which is backed by GSO Capital Partners, a credit focused arm of Blackstone Group, filed for Chapter 11 bankruptcy protection on September 9, 2020. The company is a supplier of specialty metals to the global oilfield industry and lists approximately $50 million in assets and $500 million in liabilities.

Fort Worth-based FTS International, Inc., filed for Chapter 11 bankruptcy protection on September 22, 2020 as the downturn in the industry diminished the need for drilling projects. The fracking services company has reached a debt-for-equity swap agreement with creditors to erase almost $440 million in debt from its balance sheet.

Lonestar Resources US Inc., a Fort Worth-based shale driller, filed for Chapter 11 bankruptcy protection on September 30, 2020 in Houston with more than $500 million in debt across its balance sheet. The company reached a restructuring support agreement to eliminate nearly $390 million in debt obligations and preferred equity interests.

Houston-based Oasis Petroleum Inc. filed for Chapter 11 bankruptcy protection on September 30, 2020.  The oil-and-gas driller with significant operations in North Dakota sought bankruptcy protection with a prepackaged deal to erase $1.8 billion in bond debt, which transfers control of the company to its bondholders.

M&A, capital markets, and capital projects

In recent weeks, the oil and gas industry has experienced a burst of merger and acquisition activity, including situations of new operators consolidating legacy field holdings to the start-up of new oilfield services providers.

The long-anticipated E&P consolidation boom appeared to take flight during the third quarter. On July 20, Chevron announced the agreement to acquire Noble Energy, Inc. in an all-stock transaction valued at $5 billion. The low-cost acquisition of Noble Energy’s proved reserves will add approximately 18% to Chevron’s year-end 2019 proved oil and gas reserves. The latest acquisition announcements from oil majors come from ConocoPhillips and Pioneer Natural Resources Co. ConocoPhillips announced that it has agreed to acquire Concho Resources in an all-stock transaction deal valued at $9.7 billion, making it the largest US shale-focused acquisition thus far in 2020. Pioneer Natural Resources Co. unveiled an agreement to purchase Parsley Energy Inc. for $4.5 billion, to solidify Pioneer as one of the largest producers in the Permian Basis of Texas and New Mexico.

Liberty Oilfield Services, Inc. and Schlumberger announced an agreement for the sale of Schlumberger’s onshore hydraulic fracturing business in the United States and Canada to Liberty in exchange for a 37% equity interest in the combined company. The transaction is expected to close in the fourth quarter of 2020 and will place Liberty as North America’s second largest fracking provider and expects to surpass Halliburton for the number one spot in the future.

In addition, Arab Petroleum Investments Corp. expects investment in natural gas projects across the Middle East and North Africa to climb, despite the weak demand for fuel due to the pandemic. Over the next four years, the gas projects planned or under development in the region will require approximately $211 billion in investment as Middle Eastern states line up new liquefied natural gas projects in lieu of oil-related investments.

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