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.
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.
$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
Oil will fall back down to approx. the 25 level and then will start an uptrend.
Just my prediction.
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.
Sisters Canadian boyfriends shale oil investments are on deathbed
It is estimated that ~250,000 people have lost their jobs in the oil industry in the last 18 months: CS
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.
Only a problem for the bond holders. And they will have to renegotiate.
The junk bonds were packaged into mutual funds, pension funds and insurance companies, just like the subprime mortgages in 2008.
Only a problem for bondholders is an extremely naive statement from such a maff whiz.
How do you “renegotiate” principal and interest payments when your company has a negative cash flow in the hundreds of millions?
It seems some people didn’t see it coming in 2008 and don’t see it now.
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
Bankruptcy is inevitable when your costs of extraction are $60 per barrel and your revenue is $30 per barrel. It’s called maff starfcker. Dozens of oil companies have already filed for bankruptcy. Chesapeake, one of the biggest in the industry, is dead company walking.
Your scenarios only work if the business is viable. None of these shale companies are viable at $30 oil. NONE.
Why didn’t they follow your brilliant guidance in 2008 and avoid all that pain? You should have been the Treasury Secretary. Everything would have been fine with your wisdom and mad maff skills.
Maybe tariffs can solve the shale problem.
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
Your real life example is worthless in this scenario. The shale companies will NEVER have anything to give them. They were losing money when oil was $80 per barrel. You should stick to kissing Trump’s ass. It’s what you do best.
starfcker
Why didn’t the 48 companies that have already filed bankruptcy with $17 billion in debt follow your brilliant advice? All they had to do was tell the banks they couldn’t pay. Why didn’t they think of that? You really missed your calling. You should sell your consulting services to the industry.
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
Why are no new wells being drilled? Why have working rigs fallen by 70% in the last year? Don’t they know they can operate at a loss for years while paying off their capital?
You do know that shale oil wells are 90% depleted in TWO years, don’t you?
Or are you just talking out your ass because your reasoning is fucked up and completely wrong, just like your master plan to save America through tariffs.
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?
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.
Traditional oil wells do not have 90% depletion after two years. Your maff doesn’t work, but you refuse to admit you’re wrong. That’s your MO.
Your answer on the 48 companies is disingenuous. You led off this comment stream by stating this is no big problem. Your argument was these companies just needed to tell the lenders they couldn’t pay and the debt would be repackaged. SIMPLE.
The fact is that 48 companies have gone belly up in a year. Do you consider $17 billion to be a minor default?
I’m tired of kicking your ass on this thread. It’s like arguing with a retarded shit eating Trump monkey.
And as far as kissing trump’s ass, you run trump threads everyday. I rarely comment on them
Admin – sorry to correct you, but you should have said “retarded tariff supporting shit eating Trump monkey”.
There, fixed it for you. Carry on.
Thanks llpoh, definite oversight on Jim’s part.