Energy investors have long hoped that falling prices would solve themselves by driving producers into bankruptcy and stanching the flood of excess supply, but it hasn’t worked out that way.
Their owners may be bankrupt, but the sprawling mines of Wyoming’s Powder River Basin are still churning out coal. It is the same story in oil fields along the Gulf Coast and with shale-gas wells in the Rocky Mountains.Energy investors have long hoped that falling prices would solve themselves by driving producers into bankruptcy and stanching the flood of excess supply. It turns out that while bankruptcy filings are up, they have barely impacted fossil-fuel markets.About 70 U.S. oil and gas companies filed for bankruptcy in 2015 and 2016. They now produce the equivalent of about 1 million barrels a day, about the same as before they declared bankruptcy, according to Wood Mackenzie. That represents about 5% of U.S. oil-and-gas output.That resilience has kept energy inventories flush and prices capped. Oil shot to $50 a barrel this summer, but has had trouble making much progress beyond that mark. On Friday, oil futures in New York rose 0.4% to $50.85 a barrel.The theory that bankruptcies would help balance the market “was misguided to begin with,” says Roy Martin, a research analyst at energy consultancy Wood Mackenzie. “And people are starting to come around to that now.”This is exactly the way chapter 11 was meant to work. The process is designed to save companies that can be saved, and many energy companies are using it to lighten their heavy debt loads, adapt to lean times and keep producing.