The global firm looked at 500 E&P concerns worldwide and found that 175 – 35% – are at high risk of going bankrupt, due largely to low oil prices and $150 billion in debt that at some point will come home to roost.

In the US, some 60 oil and gas companies have already declared bankruptcy over the last 18 months.

Another 160 companies have less leverage, but will face an “almost equally alarming” 2016 as their cash flow is eviscerated by sub-$30 crude oil.

“2016 will be the year of hard decisions,” Deloitte US oil and gas sector leader John England said.

“We could see E&P bankruptcies surpass Great Recession levels as companies struggle to remain solvent.

“Access to capital markets, bankers’ support and derivatives protection, which helped smooth an otherwise rocky road for the industry in 2015, are fast waning.”

Despite a significant reduction of drilling activity, supply has declined only marginally, the demand uptick due to reduced prices is less than expected, and oil prices, after stabilising for a brief period in 2015, have slipped to an eleven-year low of under $US30/bbl.

In the United States, 35 E&P companies with a cumulative debt of under $18 billion filed for bankruptcy protection between July 1, 2014, and December 31, 2015. Almost as many service companies have also gone under.

The report found that after 18 months of falling oil prices, pessimism has not bottomed out in the oil and gas industry, and will probably last at least until early 2017.

“More than two years of low and depressed prices will not only increase the stress and further fragment the response of players in 2016, but also raise several questions for the industry,” the report warned.

E&P companies have saved or raised about $130 billion in anticipation of a cash crunch, Deloitte said.

About two-thirds of those savings have come through means other than outright budget cuts, such as asset sales or issuing new equity.

But, with hope for a rapid recovery fading, Deloitte analysts said access to capital was drying up, and while producers can save money by cutting dividends or repurchasing share, many have already made deep cuts in those areas.

Deloitte expects there to be a looming capital crunch and heightened cash flow volatility through 2016, and that will force the biggest spending cuts since the 1980s.

With exploration and development budgets savaged, that will have substantial and long-lasting impact on future supplies and the geopolitics of oil.

“These cuts risk slowing the conversion of resources to reserves in frontier locations and eating into the capex required to maintain aging fields and facilities,” the report warned.

For those left standing, many will be forced to play in the mergers and acquisitions for reasons beyond seeking reserves growth.

In the near future, returns and economies of scope will likely re-emerge as the top reasons for buying assets/companies, instead of growth and economies of scale.

“The focus on lowering breakeven costs to support near-term cash flows could give way to a renewed focus on bolstering the future return on capital employed potential of the industry,” Deloitte found.

“As the industry improves performance on costs/efficiency, its future emphasis will not be on its ability to make profits at low prices, but about generating sufficient ROCE on a large base of devalued investments made in the past.”

Deloitte Centre for Energy Solutions executive director Andrew Slaughter said there was no “silver bullet solution” that applies to the whole industry – “in fact, the landscape has never been more complicated”

“Each company has its own set of unique factors to consider – from issues specific to each producing region and asset, to various states of financial circumstances,” Slaughter said.

“Staying solvent will require the same level of perseverance, innovative thinking and creativity as the technology breakthroughs that led to the boom in supply we have seen over recent years.”