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Oil Industry Needs to Find Half a Trillion Dollars to Survive


At a time when the oil price is languishing at its lowest level in six years, producers need to find half a trillion dollars to repay debt. Some might not make it.

The number of oil and gas company bonds with yields of 10 percent or more, a sign of distress, tripled in the past year, leaving 168 firms in North America, Europe and Asia holding this debt, data compiled by Bloomberg show. The ratio of net debt to earnings is the highest in two decades.

If oil stays at about $40 a barrel, the shakeout could be profound, according to Kimberley Wood, a partner for oil mergers and acquisitions at Norton Rose Fulbright LLP in London. West Texas Intermediate crude was up 2.3 percent at $39.47 a barrel at 1:43 p.m. in Singapore.

“The look and shape of the oil industry would likely change over the next five to 10 years as companies emerge from this,” Wood said. “If oil prices stay at these levels, the number of bankruptcies and distress deals will undoubtedly increase.”

Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. A total of about $550 billion in bonds and loans are due for repayment over the next five years.

U.S. drillers account for 20 percent of the debt due in 2015, Chinese companies rank second with 12 percent and U.K. producers represent 9 percent.

In the U.S., the number of bonds yielding greater than 10 percent has increased more than fourfold to 80 over the past year, according to data compiled by Bloomberg. Twenty-six European oil companies have bonds in that category, including Gulf Keystone Petroleum Ltd. and Enquest Plc.

Pressure Builds

Gulf Keystone can “satisfy all its obligations to both its contractors and creditors” after authorities in Kurdistan, where the company operates, committed to making monthly payments from September, Chief Financial Officer Sami Zouari said in an e- mail.

An EnQuest spokesman declined to comment.

Slumping crude prices are diminishing the value of oil reserves and reducing borrowing power, even as pressure builds to find replacement fields.

Some earnings metrics are already breaching the lows of the 2008 financial crisis. The profit margin for the 108-member MSCI World Energy Sector Index, which includes Exxon Mobil Corp. and Chevron Corp., is the lowest since at least 1995, the earliest for when data is available.

“There are several credits which simply won’t be able to refinance and extend maturities and they may need to raise additional equity,” said Eirik Rohmesmo, a credit analyst at Clarksons Platou Securities AS in Oslo. “The question is: would they be able to do that with debt at these levels?”

Credit Ratings

Some U.S. producers gained breathing space by leveraging their low-cost assets to raise funds earlier this year and repay debt, Goldman Sachs Group Inc. wrote in a Aug. 6 report. This helped companies shore up their capital and reduce debt- servicing costs.

That may no longer be an option because energy companies have been the worst performers in the past year among 10 industry groups in the MSCI World Index.

Credit-rating downgrades are putting additional strain on the ability of oil companies to raise money cheaply. Standard & Poor’s cut the rating of Eni SpA, Italy’s biggest oil company, in April, while Moody’s Investors Service downgraded Tullow Oil Plc’s debt in March.

Spokesmen for Eni and Tullow declined to comment.

The biggest companies, with global portfolios that span oil fields to refineries, will probably emerge largely intact from the slump, Norton Rose’s Wood said. Smaller players, dependent on fewer assets, could have problems, she said.

“Clearly, those companies with debt to pay will have one eye firmly on oil prices,” said Christopher Haines, a senior oil and gas analyst at BMI in London. “With revenues collapsing and debt soon to mature, a growing number of companies may find themselves unable to meet repayment schedules.”


15 Comments on "Oil Industry Needs to Find Half a Trillion Dollars to Survive"

  1. BC on Thu, 27th Aug 2015 12:17 pm

    Oh, Canada . . . is in recession.

    Next comes the epic housing busts in Canada and Oz, bank failures and bailouts, and deflation. House prices could fall 40-50% over the next 3-5 years.

    The US is also in a housing echo bubble with the real median house price back to the levels of 2005-07 WRT real wages per capita and real core retail sales per capita.

  2. bug on Thu, 27th Aug 2015 2:02 pm 

    Not to fret, uncle Sammy will help in the end. Remember, good of the country, job creationists and too big to whatever, hahahaha

  3. apneaman on Thu, 27th Aug 2015 2:05 pm 

    Canadian dollar sinks to 11-year low
    Market turmoil, decline in oil help push down loonie

  4. Outcast_Searcher on Thu, 27th Aug 2015 3:27 pm 

    As though stronger hands can’t buy discounted assets from weaker hands and wait for stronger prices, shutting down production as necessary. Sure.

    And if you believe this, also pretend Warren Buffett and his ilk, don’t exist, and in financial unicorns.

  5. BobInget on Thu, 27th Aug 2015 3:35 pm 

    Let’s organize a web wide bake sale.
    (Gluten, GMO free)

    If there’s a profit motive, the funds will be there. Most posters here are way early to the retirement party.

  6. BobInget on Thu, 27th Aug 2015 3:40 pm 

    Canada sells oil denominated in USD’s not CAD.
    Canadian banks, Contractors, CEO’s, in house labor get paid in loonies.It took till today for the smartest men in many rooms to dope that one out.

  7. apneaman on Thu, 27th Aug 2015 4:02 pm 

    What are the royalties paid in Bob?

    We have been in recession for awhile they just would not admit it – upcoming election.

    After 08-09 crash the Harper gang feed the obedient consumer zombies a load of horse shit that we had no bailouts and were better regulated bla bla bla and it was all over the American news too – horse shit. The sheep swallowed it and kept the dopamine consumer paradise rolling along. We have one of the highest levels of household debt in the world. Maybe the highest. Almost everyone I know, fuck – the majority of the country, is in denial about the 3e’s – not the loud in your face American style denial, but a special polite quite Canadian version where if we just don’t talk about it maybe it will go away. Oh, and don’t mention the new soft fascism we now live under either. Same shit different country.

    The Big Banks’ Big Secret
    Estimating government support for Canadian banks during the financial crisis

    Harper, Serial Abuser of Power: The Evidence Compiled
    The Tyee’s full, updated list of 70 Harper government assaults on democracy and the law.

    Research library’s closure shows Harper government targets science ‘at every turn,’ union says
    Latest closure affects the Agriculture and Agri-Food Lethbridge Research Centre in Alberta

  8. penury on Thu, 27th Aug 2015 5:05 pm 

    So the oil cos need trillions of dollars to survive? Not a problem. Money will always be made available to any entity which can plead that they are essential to the nation. How are you going to keep nine wars going if you cannot get the oil? SA can only supply so much free gas. The entire world is bankrupt. Nations continue to pretend that the CBs of the world can continue to control the economies, but in their hearts they know it is all toilet paper. What’s a fiat dollar worth? Another one just like it. There is no value to the money. Backed by the full faith and credit of the U.S.? Everyone needs trillions to survive and the trillions are not there. Thnk about the outcome.

  9. BobInget on Thu, 27th Aug 2015 6:34 pm 

    Apneaman, Ok ya got me. I forgot to add Royalties. I’l dare a guess. If wells in question are in Canada, loonies are offered in exchange for rights.

    Most of the oily Canadian companies I’m aware of, good or bad, don’t sell enough crude to China.

    Canada should take a lesson from Saudi Arabia and bomb North Dakota …. NO!
    That’s not what I meant to say.
    Canada should open more West Coast refineries,chemical and plastics manufacturing. Shipping raw crude East seems more expensive then shipping diesel and other light oils.

    Mexico is now net crude importer. The difference, Canada’s dipstick still shows a bit of conventional remaining.

    Canada is now importing Brent crude and US
    refined product into Eastern Provinces by rail.
    This is proving expensive and dangerous.

    One of the reasons I invest in pipelines. Gas or oil prices are irrelevant. Only volume matters. Canada’s population tracks California’s (35,749,600 on April 1, 2015, up 46,900 from January 1, 2015)

    Obviously, Canada has growing room.
    Climate changes present both challenges and orpertuzities.

    Rising sea levels around the planet will force billions to relocate over the next 75 years.

    Canada looks blessed. NDP should fortify the border with a wall. Surly, Mexico will pay for it.

  10. apneaman on Thu, 27th Aug 2015 7:37 pm 

    Bob, you might want to think twice about investing in any pipeline that sits on or is buried in permafrost – it’s getting close to a tipping point and the ground is going to shift and heave and snap that sucker like a twig. Ever see those pictures of the methane blow holes in Siberia? That could put a dent in the ole investment. Then there are the ever growing and unpredictable forests fires. We still have plenty of that to burn in Canada and no way to prevent it. Listen to the old time fire fighters. They are saying that they are seeing behavior they did not know was possible. Lots of Firenadoes now – very powerful. Sucking the earth itself up and taking it for a ride. One even dumped a bunch of earth and half burnt fuel on some firefighters the other day. I think it’s a toss up between Alaska and Siberia for the first permafrost pipeline disaster. Place your bets folks. Doesn’t Shell plan to run any oil they get in the Arctic through TAPS? That would be a bummer.

    U.S. scientists warn leaders of dangers of thawing permafrost

  11. Makati1 on Thu, 27th Aug 2015 8:08 pm 

    Janet is already warming up the presses. She will print as much as necessary to prop up the corporatocracy/fascist America. Until it all falls on her head (and ours). Let it go now!

  12. Kenz300 on Fri, 28th Aug 2015 6:28 am 

    Wind and solar are the future….. fossil fuels are the past.

    Top 10 Clean Energy Trends Driving the Global Clean Energy Revolution – Renewable Energy World

  13. rockman on Fri, 28th Aug 2015 9:31 am 

    penury – No oil company in our engire history has ever been considered “too big to fail” Easy proven by the many hundreds of companies that have disappeared over ghe decades. Ever hear of Gulf Oil, Texaco, Getty Oil, Tenneco, etc. etc. etc. You ever wonder where the “Mobil” in ExxonMobil came from. And within that extinct Mobil Oil Company was the skeletal remains of Suprior Oil. Just as once there was once a large oil producer called Amerada that became Amerada-Hess which is now tagged simply Hess, one of the big players in the Bakken. Who knows: maybe one day we’ll see a company called ExxonMobilHess.

    As I’ve said many times: we eat our own cripples. Nothing personal…just good business.

  14. Kenz300 on Sat, 29th Aug 2015 8:26 am 

    Oil companies need to diversify and become ENERGY companies rather than OIL companies…….they need to embrace the changes going on and invest in alternative energy sources…

    The sooner they diversify and embrace the transition to safer, cleaner and cheaper alternative energy sources the better chance they will have of survival.

    100 Percent Renewable Energy Charged EV Stations Allow Driving on Sunshine – Renewable Energy World

  15. Kenz300 on Sun, 30th Aug 2015 10:30 am 

    Fossil fuels are the past…. the future is using safer, cleaner and cheaper alternative energy sources…

    Top 10 Clean Energy Trends Driving the Global Clean Energy Revolution – Renewable Energy World

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