“A Murderer’s Row”: Oil And Gas Bankruptcies To Accelerate As $137 Billion Debt Matures Over Next Two Years
Oil and gas companies are facing an onslaught of bankruptcies as the “shale revolution” appears to be coming to an unceremonious end, at least on Wall Street, according to the Wall Street Journal.
Companies like Sanchez Energy Corp., Halcon Resources Corp. and 26 other oil and gas producers have all filed for bankruptcy this year, already matching the 28 industry bankruptcies from all of 2018. The number is expected to rise as debt maturities for those looking to cash in on the shale revolution and make bets on higher oil prices years ago are now looming.
5.7% of all energy companies with junk rated bonds are defaulting as of August, the highest level since 2017. The metric is “considered a key indicator of the industry’s financial stress.”
The defaults are on the rise as companies struggle to service debt, bring in new money and refinance existing debt. The once-darling shale business model has been under significant scrutiny from Wall Street over the last 18 months, adding to the headwinds for many companies.
Investor interest has faded after years of meager returns while, at the same time, companies struggle to meet their cost of capital with oil prices below $60/barrel.
Private companies and smaller drillers have felt the most pain thus far. These companies “collectively generate a large portion of U.S. oil,” and their distress is indicative of wider distress throughout U.S. shale.
Patrick Hughes, a partner at Haynes & Boone said: “They were able to hang in there for a while, but now their debt levels are just too high and they’re going to have to take their medicine.”
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