More than 50 oil and gas producers have filed for bankruptcy since early 2015

As oil prices nosedived by two-thirds since 2014, a belief took hold in global energy markets that for prices to recover, many US shale producers would first have to falter to allow markets to rebalance.

With US oil prices now trading below US$40 a barrel, the corporate casualties are already mounting. More than 50 US oil and gas producers have entered bankruptcy since early 2015, according to a Reuters review of regulatory filings and other data. While those firms account for only about one percent of US output, based on the analysis, that count is expected to rise. Consultant Deloitte says a third of shale producers face bankruptcy risks this year.

But a Reuters analysis has found that bankruptcies are so far having little effect on US oil production, and a tendency among distressed drillers to keep their oil wells gushing belies the notion that deepening financial distress will prompt a sudden output decline or oil price rebound.

Texas-based Magnum Hunter Resources, the second-largest producer among publicly-traded companies that have filed for bankruptcy, is a case in point.

It filed for creditor protection last December, but even as the debt-laden driller scrambled to avoid that outcome, its oil and gas production rose by nearly a third between mid-2014 and late 2015, filings show.

Once in Chapter 11, its CEO Gary Evans said the bankruptcy, which injected new funds to ensure it would stay operational, could help to “position Magnum Hunter as a market leader.”

The company did not respond to a request for comment for this story. However, John Castellano, a restructuring specialist at Alix Partners, said that all of the nearly 3,000 wells in which Magnum Hunter owns stakes have continued operations during its bankruptcy.

Production figures can be hard to track post-bankruptcy, but restructuring specialists say that many bankrupt drillers keep pumping oil at full tilt. Their creditors see that as the best way to recover some of what they are owed. And as many bankrupt firms seek to sell assets, operating wells are valued more than idled ones.

“Oil companies in bankruptcy do not seem to automatically curtail production," said restructuring expert Jason Cohen, a partner at the Bracewell firm in Houston. "Lenders are willing to let them continue to produce as long as economically viable.”

For most companies in bankruptcy or considering it, maximizing near-term production does make economic sense. Day-to-day well operating costs in most US shale fields remain well below $40 a barrel. Bankrupt firms are also eligible for new financing that can allow them to keep pumping for some time.

At least 20 publicly traded companies have filed for creditor protection since the start of 2015. They held at least 95,000 barrel of oil equivalent per day (boepd) in production, according to their last disclosed annual output figures. Another 30 or so privately held companies also have gone bust, in what already is the biggest wave of North American bankruptcies since the subprime mortgage crisis.

They account for just over 1 percent of US output, but the figure is set to grow with banks expected to slash credit lines to energy firms in their biannual review of borrowing limits in April.

The EIA forecasts output will only drop seven percent this year to 8.7 million bpd, even after US oil and gas producers have shed more than 100,000 jobs, slashed spending and idled 75 percent of rigs since the end of 2014.

Many bankrupt firms can sustain their output thanks to so-called debtor-in-possession (DIP) financing for operating and other expenses made available by existing creditors, banks, or private equity firms.