Shale Faces March Madness With $1.2 Billion in Interest Due

By Asjylyn Loder at Bloomberg

 

The U.S. shale industry must come up with $1.2 billion in interest payments by the end of March as $30-a-barrel oil makes it harder for companies to scrape up the cash needed to stay current on their debts.

Almost half of the interest is owed by companies with junk-rated credit, according to data compiled by Bloomberg on 61 companies in the Bloomberg Intelligence index of North American independent oil and gas producers. Energy XXI Ltd. said in a filing Tuesday that it missed an $8.8 million interest payment. The following day, SandRidge Energy Inc. announced that it didn’t make a $21.7 million interest payment.

“You’ve seen two of these happen in two days, and I wouldn’t be surprised to see more in the next month as these payments come due,” said Jason Wangler, an energy analyst at Wunderlich Securities Inc. in Houston.

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Energy XXI may not be able to meet its commitments in the next 12 months, raising “substantial doubt regarding the Company’s ability to continue as a going concern,” according to a company filing with the U.S. Securities and Exchange Commission. A company representative didn’t return a phone call and e-mail seeking comment.

SandRidge Payment

SandRidge “has sufficient liquidity to make these interest payments, but has elected to use the 30-day grace period in connection with its ongoing discussions with stakeholders,” the company said in a statement released Wednesday.

“Today’s actions will preserve liquidity and flexibility as we continue to engage in constructive dialogue with our stakeholders,” James Bennett, SandRidge president and chief executive officer, said in the statement.

Oil has tumbled about 70 percent since a June 2014 peak of $107 a barrel. While prices were high, many drillers spent more money than they earned, plugging the shortfall with debt. West Texas Intermediate futures rose 2.7 percent to $31.49 a barrel at 8:29 a.m. in New York Thursday.

That debt has become increasingly burdensome as prices collapse. Since the start of 2015, 48 North American oil and gas producers have declared bankruptcy, owing more than $17 billion, according to law firm Haynes & Boone LLP. Deloitte LLP said this week that bankruptcies in the oil and gas industry could surpass levels seen in the Great Recession.

$9.8 Billion

The industry is facing $9.8 billion in interest payments through the end of this year, according to data compiled by Bloomberg.

SandRidge, which drew down its full $500 million credit line on Jan. 22 and hired legal and financial advisers, has another payment of about $28 million due March 15, the data show. Chaparral Energy Inc., which likewise tapped its entire credit line and hired advisers this month, owes $17 million next month. A representative for Chaparral did not return a phone call and e-mail seeking comment.

“If you can’t make it through the year at current strip prices, then why pay the coupon?” said Subash Chandra, a managing director with Guggenheim Securities in New York. “If you can’t make it out of this year, and asset sales aren’t going anywhere and no one wants your equity, then there just aren’t that many avenues to fix the problem.”

Source: Shale Faces March Madness with $1.2 Billion in Interest Due – Bloomberg

 

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20 Comments
kokoda
kokoda
February 21, 2016 10:25 am

Oil will fall back down to approx. the 25 level and then will start an uptrend.
Just my prediction.

Anonymous
Anonymous
February 21, 2016 10:39 am

Low oil prices after the people have gotten used t much higher ones is the perfect opportunity to increase taxes on fuel and other petroleum products.

Kill Bill
Kill Bill
February 21, 2016 10:40 am

Sisters Canadian boyfriends shale oil investments are on deathbed

Westcoaster
Westcoaster
February 21, 2016 2:54 pm

We saw the 1st under $2 a gallon gas at a station in Cabazon yesterday near Palm Springs. I think it was $1.97. There was a long line.

starfcker
starfcker
February 21, 2016 5:17 pm

Only a problem for the bond holders. And they will have to renegotiate.

starfcker
starfcker
February 21, 2016 6:18 pm

You tell them. I can’t pay. What do you want to do? Then you suggest some new numbers highly in your favor, and see where they are willing to bend. Maybe you suspend payments for two years. Maybe interest only. Maybe you write down principle. Lots of ways to get it done. The bondholders don’t want to get killed, pennies on the dollar. Most of the time, when faced with staggering losses, people tend to get real reasonable very quickly. Chapter 7 is generally bad for everyone involved. When there’s a will, there’s a way

starfcker
starfcker
February 21, 2016 6:31 pm

Jim, a friend of mine had a loan with the farm credit people, and his repayment schedule was 5 payments of $160,000. every October. The first payment came due, and he had nothing to give them. They sat down and worked it out. They deferred the first payment and put it on the year following the last payment. It worked, and now he only has two payments left, and everyone is happy. That’s how it’s done, all the time.

starfcker
starfcker
February 21, 2016 7:00 pm

Think of what your costs are in the oil business. Equipment, labor, debt service. The terms of all which can be renegotiated. Even when oil was eighty dollars a barrel, the producers never saw that. They get paid what’s called wellhead price, and that varies due to quality and transport costs. Dirty little secret. Lots of businesses, particularly in industries with extremely high capex, such as oil extraction, operate at a loss or with tiny margins for years, until the infrastructure gets paid off. It’s like buying a car with four years of payments, yeah it’s brutal while you make the payments, but it sure is sweet once that sucker is paid off, and you drive free for the next dozen years

starfcker
starfcker
February 21, 2016 7:07 pm

I don’t run those companies. I have no clue. In one of my business lines, we advertise in a trade publication that three years ago had 750 advertisers. Today, there are 305. Is it a bad industry, or are some people just better at running businesses?

starfcker
starfcker
February 21, 2016 7:14 pm

Even regular oil wells are frontloaded. They all decline rapidly in the first couple of years. The business model for oil has always been to hope the upfront gusher pays for the drill. Remember, that rig moves on to drill another hole. Let’s say the average well pumps 400 bpd at the begining. Well three years later, the drilling hopefully has been paid for, and a little hammerhead pump sits on that hole and pumps 10% (40bpd) for the next 25 years.

starfcker
starfcker
February 21, 2016 7:18 pm

And as far as kissing trump’s ass, you run trump threads everyday. I rarely comment on them

llpoh
llpoh
February 22, 2016 4:51 pm

Admin – sorry to correct you, but you should have said “retarded tariff supporting shit eating Trump monkey”.

There, fixed it for you. Carry on.

starfcker
starfcker
February 22, 2016 11:26 pm

Thanks llpoh, definite oversight on Jim’s part.