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Financial Sector To Cut Credit Supply Lines For Oil And Gas Industry
Financial Sector To Cut Credit Supply Lines For Oil And Gas Industry
More U.S. oil and gas companies could come under financial distress in the coming months as crucial hedging protection begins to expire.
Many companies had locked in high prices for their oil sales last year, allowing them a degree of protection as oil prices collapsed precipitously over the second half of 2014. Few, if any, hedged all of their production though, so revenues declined along with the oil price. Still, with some protection, the vast majority of companies (aside from a tragic handful) have not missed debt payments and have stayed out of bankruptcy.
That could become an increasingly tricky feat to pull off. As time passes, more and more hedges are expiring, leaving oil companies fully exposed to the painfully low oil price environment. “A lot of these smaller guys who had bad balance sheets have pretty good hedge books through full-year 2015,” Andrew Byrne, an analyst with IHS, told the Houston Chronicle. “You can’t say that about 2016.”
Related: Is George Soros Betting on the Long-Term Future of Coal?
In fact, about one-fifth of North American production is hedged at a median price of $87.51 per barrel. Smaller companies rely much more heavily upon hedging as they are more vulnerable to price swings and are not diversified with downstream assets. Across the industry, IHS estimates that smaller companies had about half of their production hedged at a median oil price of $89.86 per barrel in 2015.
But as those positions expire, any new hedges will be linked to current oil prices, which are now trading around $45 per barrel (although prices are fluctuating with great intensity and ferocity these days).
More worrying for the oil and gas companies that are struggling to keep their lights on is the forthcoming credit redeterminations, which typically take place in April and September. Banks recalculate credit lines for drillers, using oil prices as a key determinant of an individual company’s viability.
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135 retail firms in critical condition, say analysts | Business | The Guardian
135 retail firms in critical condition, say analysts | Business | The Guardian.
UK retailers are facing increased financial stress this year as the big supermarkets fight a price war that has forced the rest of the high street to slash prices and squeeze profit margins.
As retailers prepare for the quarterly rent day on Christmas Day, traditionally the time when banks call in the administrators, more than 24,000 retailers are suffering from significant financial distress, according to research by the advisory firm Begbies Traynor.
The number is up 54% compared with the same time a year ago, with food and clothing retailers among the worst hit.
Begbies Traynor said as many as 135 businesses were in critical condition as retailers chased sales in the final days of Christmas.
The accountancy firm did not name specific retailers but those in difficulty are thought to include Austin Reed, the tailoring firm, which is understood to be close to appointing Deloitte to work on a rescue deal that may include a company voluntary arrangement allowing it to sell off unprofitable stores.
Julie Palmer, a retail expert at Begbies Traynor, said: “Black Friday was lauded as the biggest day of the retail sales this year but it seems the only real winners were the largest online retailers and the big-brand high street chains with the biggest discounts.”
