E & P Industry Overview
After collapsing in late 2014, oil prices reached historic lows in the first quarter of 2016 but have since started to show signs of recovery. In the face of falling oil prices, E&P companies cut capital expenditures, reigned in drilling activities, and reorganized business models. Recently companies halted exploration activities and cut capital projects to drill new wells. Now that oil prices may recover, companies are looking to replace their reserves through acquisitions. M&A activity picked up in the E&P sector in the second quarter of 2016 as many companies saw growth opportunities in the Permian.
Although oil prices showed signs of improvement, the trend of bankruptcy continued in the second quarter as 75 E&P companies went bankrupt compared to 43 in the first quarter.1 The majority filed for Chapter 11 protection hoping to reorganize. Many of the bankrupt firms were smaller companies who had less flexibility to exchange debt or draw a second-lien.
The price of crude oil is determined by market forces: supply and demand. On pages 2 and 3, world demand and supply is analyzed in order to understand the current pricing environment.
