Political Climate Shifting Against The Oil And Gas Industry
Drilling oil and gas wells requires a lot of money. For companies that have seen their revenues vanish because of collapsing oil prices, access to credit is obviously critically important. But U.S. financial regulators are growing concerned about a pile of energy debt that is deteriorating in quality. A reportfrom the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Federal Reserve singled out the oil and gas sector when it concluded that credit risk was rising across the United States.
For example, there is at least $34.2 billion in loans in the banking sector that have a credit rating suggesting they are “substandard,” “doubtful,” or “loss.” That figure is up from just $6.9 billion in 2014. Put another way, about 12 percent of all loans to oil and gas companies are rated “substandard” or worse.
Related: Canada’s Oil Sector Cautiously Optimistic About Late 2016 Recovery
Low oil prices are undermining the ability of some companies to pay back their debt. However, increased oversight from banking regulators could force banks to take corrective measures, which could mean reducing their exposure to high-risk energy debt. Such a development does not bode well for oil and gas drillers. Tighter credit conditions – which could also be impacted by a pending rate increase by the Federal Reserve in December – will make drilling more expensive.
In the political arena, things are not any better, with last week being a particularly rough one for the energy sector.
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