Oilfield Carnage: Bankruptcies Coming Quickly; Houston Office Market to Hurt, Says JLL’s Global Energy Head: “We’re Going to Lose a Very Significant Portion” of Independent Oil Companies
HOUSTON – (Realty News Report) – Independent energy companies are destined to fail quickly and the Houston real estate market will be bruised during the oil market crash, which dropped oil prices to an unprecedented low this week, a Houston real estate advisor says.
In the next three months, the carnage will be great among the nation’s small independent producers and drilling companies, including many that operate in Texas oilfields, said JLL International Director Bruce Rutherford, head of the Global Energy Practice Group for the international real estate firm.
“We are going to lose a very significant portion of the 6,000 independent oil companies over the next 90 days. They are going to go bankrupt or be acquired by other companies. Their hydrocarbons are not going to disappear. The hydrocarbons are still going to be in the ground and somebody is going to harvest that,” Rutherford said.
Rutherford, speaking at a webinar presented by Bisnow Media Tuesday, said the Houston office market is headed for rough patch as well. West Texas Intermediate crude fell below $1 a barrel Monday to a low of a negative $37 a barrel, a 300 percent one-day decline the likes of which has never been seen before.
“Even before this catastrophic drop in oil prices yesterday, the Houston real estate market was being pummeled by effects of the pandemic and low oil prices,” Rutherford said.
“Oil prices at $20 a barrel were bad, very bad. We saw the vacancy rate in Houston office space … going north,” said Rutherford, who is based in Houston with JLL, a large commercial real estate firm also known as Jones Lang LaSalle.
This incredible economic downturn will create opportunities for tenants to lock-in exceptional office leases for the long-term, Rutherford said.
“These unprecedented times have slowed commerce to a near halt,” Avison Young Houston principal Anthony Squillante said in a press release. “However, if tenants are willing and able to transact, landlords are likely to offer aggressive concession packages in response to social distancing and work-at-home orders in an effort to keep their building’s occupancy rate up.”
The Houston office market has 21 office buildings under construction, adding a total of 3.8 million square feet, Avison Young reported. The 47-story Texas Tower developed by Hines is the largest of Houston’s new projects, which have been benefitting from the “flight-to-quality” movement by tenants that prefer top-quality offices.
Houston’s overall office vacancy rate was 20 percent in the first quarter, up from 19 percent in the first quarter of 2019, according to CBRE. And there’s been negative absorption in the first quarter with 576,723 square feet becoming vacant, CBRE reported.
In Houston, more than 240,000 unemployment claims have been filed over the past four weeks, reports Patrick Jankowski, the chief economic analyst for the Greater Houston Partnership. But Jankowski notes the website and phone lines at the Texas Workforce Commission have been overwhelmed and he anticipates Houston jobless claims will top 300,000 when the backlog is cleared.
WTI oil prices must be over $40 a barrel for most domestic energy producers to break even. Wednesday morning the price was around $15 a barrel as the world was awash in a massive oversupply of oil.
Some energy experts believe a complete oil price recovery is 18 months away, Rutherford said. Of course, no one knows for sure.
