Great Unwind of Oil-and-Gas Junk Bonds to Defund Fracking? | Wolf Street.
The price of oil plunged once again off the chart on Monday and early Tuesday. At one point, West Texas Intermediate traded below $54 per barrel, though it soon bounced off. Crude is down nearly 50% since June. And over-indebted energy companies with cash flows that range from increasingly uncertain to completely demolished are suddenly contemplating just how deep the abyss might be.
The below-investment-grade bonds these risky companies issued with enormous hoopla and hype to fund the shale revolution and offshore drilling projects, lovingly dubbed “junk bonds,” had been sold to investors on the premise that oil would sell for ever increasing prices in the future, with the understanding that this might allow the company to make interest payments on time and raise new debt to pay off the old debt when it matures.
Even the still uncertain economics of fracking – the expense of drilling coupled with the horrendous decline rates – or the potential environmental consequences and subsequent backlash were elegantly shrugged off on Wall Street, given the ever increasing price of oil.
