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US shale sees light at the end of a tunnel


The US oil and gas sector collapsed in the market turmoil caused by COVID-19 last year, but the US shale patch is back on track and looks still healthy.

The US oil and gas sector is recovering from last year’s market downturn. But unlike the boom-and-recession cycle of the past, the industry has postponed production expansion, focusing on strengthening balance sheets, repayment of loans, and rewarding shareholders. As a result of rising commodity prices this year and, above all, fixed investment discipline, US shale patches are now financially strong. Bankruptcies have been low and far apart in recent months, with energy loan default rates dropping to their lowest levels since the oil market crashed in March and April last year.

In addition, low interest rates have led many US oil and gas companies to raise new debt. Most of them will pay off existing debt rather than drilling more wells.

US energy defaults fall sharply

One indicator shows that the credit quality of loans and bonds in the US oil and gas sector has improved significantly in recent months.

According to Fitch Ratings, the energy sector’s default rate for the last 12 months (TTM) was 9.1% in July. report on Wednesday. Energy default rates have fallen below double-digit percentages for the first time since April 2020. The default rate has also dropped significantly from its peak of 20.3 percent in March, Fitch Ratings said.

By the end of this year, energy defaults will drop to another 5% as defaults get smaller and oil prices rise, according to rating agencies. According to Fitch Ratings, this year we see smaller defaults compared to the four defaults of publishers over $ 1.5 billion in 2020.

By comparison, at this point last year, Fitch Ratings Was estimating Energy default rate ending 2020 at 18%. In the second quarter of 2020 alone, energy generated a $ 5 billion default.

Eric Rosenthal, senior director of leveraged finance at Fitch Ratings, said this year that Fitch Ratings “does not anticipate many bankruptcies in the coming months. Top market concerns Only 2% of loans are related to energy. “ Forbes‘Senior contributor Mayra Rodriguez Vallardares.

Bond defaults have also dropped significantly this year, according to Fitch Ratings.

“Energy is only 10% of the top market concern list, down from 57% a year ago. Compared to $ 14.4 billion in the same period in 2020, YTD high yield energy defaults to 32. It’s only $ 100 million, “said Rosenthal. I told Rodriguez Validares.

Energy bankruptcy slows

This year, the default rate is as companies with unsustainable debt have already filed for bankruptcy in the past year, while others are using record cash flow to repay their debt. It has dropped significantly.

The number of North American producers who filed for bankruptcy protection in the first quarter of 2021 reached the highest number in the first quarter since 2016, but the wave of bankruptcy was in the second and third quarters of 2020. It has slowed significantly since its peak. The Haynes and Boon office said the latest tally was until March 31st. Bankruptcies in the first quarter of 2021 were the highest in the first quarter since 2016, but tended to be delayed after 18 oil and gas producers filed in the second quarter. Another 17 quarters of 2020 and the third quarter, the two quarters when oil price plunges and crises were most felt, were taken care of by producers.

U.S. shale patch borrows again

US oil and gas companies are seeking funding using high oil prices and historically low interest rates.

The EIA said in April that soaring oil prices and low interest rates encouraged U.S. listed independent oil producers to raise the most money in March through debt and equity issues since August last year. rice field.

This time, the borrowed money is being used to repay previously withdrawn credit facilities and bonds, not to relentlessly drill new wells or track record production growth.

“Since oil prices began to rise, US oil producers have raised debt and capital to refinance their debt, resume drilling activities, or purchase acreage,” the EIA said.

The low yields on corporate bonds also helped lower interest rates on new bonds and reduce the cost of debt issuance, the EIA said.

Historically low interest rates give US shale thrillers additional incentives to raise new debt and refinance existing debt. Today, the US energy sector is raising new debt as cheap as seven years ago, when oil was $ 100 a barrel. Bloomberg Intelligence..

How long does the discipline last?

So far this year, as Harold Hamm warned in 2017, U.S. oil and gas companies are sticking to capital discipline promises and showing investors money to drill “to oblivion.” I like.

Record cash flow, expected to rise in oil prices, could heal the balance sheets of many shale producers this year.

In an analysis earlier this month, Listad Energy said that even if U.S. shale wanted to significantly increase production in response to $ 70 in oil, it would take at least nine months for production to increase significantly. He said it would take.

An executive at an E & P company may have summarized this year’s US shale patch motto as follows: comment Dallas Federal Energy Survey Second Quarter Released at End of June:

“Don’t feed, excavator: keep your capital disciplined and enjoy the higher prices of your products.”


One Comment on "US shale sees light at the end of a tunnel"

  1. fall guys on Tue, 3rd Aug 2021 11:08 pm 

    Thank you for sharing this information, I will contact this phone number shortly!

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