Wednesday, December 2, 2015

CNBC: Oil Companies Brace for Big Wave of Debt Defaults

With the price of oil staying low now for a long time, the inevitable result is that some oil companies who are leveraged with debt are in trouble. As some of these start to default on that debt, we need to stay alert because there are derivatives contracts tied to oil prices held by both oil companies and banks. The banks holding the debt on oil companies that do default will also take a hit. Below are some quotes from the CNBC article.

"Low oil prices are leaving many oil and gas companies with difficult debt loads, causing them to default at an extraordinary rate. 
On top of that, rating firm Moody's forecasts the default rate will increase. 
"The energy sector remains the most troubled, accounting for almost a quarter of the 79 defaults so far this year," said Sharon Ou, Moody's Credit Policy Research senior credit officer.
The strain on the oil patch comes after years of borrowing heavily at the start of the domestic energy renaissance."
At the time, oil was hovering around $100 a barrel. But now, with West Texas Intermediate crude oil slightly above $40 a barrel, these companies are seeing their revenue dry up — and remain saddled with debt."
Added note: We covered the oil industry more in depth in this earlier blog article.

Additional added note: As world leaders meed in France to discuss energy issues and climate change, the state of Texas is already moving right along to diversify its energy resources and boost the share generated by renewable sources. 

No comments:

Post a Comment