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Impatient Banks: A Real Red Flag For The Oil Patch

Impatient Banks: A Real Red Flag For The Oil Patch

Lenders to the oil and gas industry have been extraordinarily lenient amid the worst downturn in decades, allowing indebted companies to survive a little while longer in hopes of a rebound in oil prices. But the screws are set to tighten just a bit more as the periodic credit redetermination period finishes up.

Banks reassess their credit lines to oil and gas firms twice a year, once in the spring and once in the fall. While the lending arrangements vary from bank to bank and from borrower to borrower, lenders largely punted on both redetermination periods last year, providing a grace period for drillers to wait out the bust in prices. But oil prices have not rebounded much since the original crash in late 2014.

Time could run out for companies that have been hanging on by a thread.

Debt was not seen as a big problem in the past, as triple-digit oil prices had both lenders and borrowers eager to see drilling accelerate and spread to new frontiers. Indeed, debt rose even when oil prices exceeded $100 per barrel. According to The Wall Street Journal, the net debt of publically-listed global oil and gas companies grew threefold over the past decade, hitting a high of $549 billion last year. In fact, debt accumulated in the sector at a faster rate between 2012 and 2015 – a period when oil prices were exceptionally high – than in previous years.

With oil prices down more than 60 percent from the 2014 peak, piling on ever more debt to a loss-making operation looks increasingly untenable. Distressed energy loans – loans in danger of default – account for more than half of the energy portfolio at several major banks.

…click on the above link to read the rest of the article…

JPMorgan Just Sounded a $500 Million Alarm Bell On America’s Dying Oil Patch

JPMorgan Just Sounded a $500 Million Alarm Bell On America’s Dying Oil Patch

Back on January 14, we noted that JPMorgan did something they haven’t done in 22 quarters: the bank increased its loan loss provisions.

The “reserve build of ~$100mm [is] driven by $60mm in Oil & Gas and $26mm in Metals & Mining within the commercial banking group,” the bank said.

That led us to ask of JPMorgan the same thing we’ve asked of Wells Fargo, BofA, and every other TBTF that’s gotten itself overextended in America’s soon-to-be bankrupt O&G space: “if a regional bank like BOK Financial was slammed by just one loan (to what we can only assume was a smaller energy firm), where does the buck stop, and how many other regional, or even big, banks, are woefully underreserved in their exposure to energy loans?”

Most importantly, we said, are these follow up questions:

“How long before the impairments and charges currently targeting smaller firms finally shift to the bigger ones? And how underreserved is JPM for that eventuality?

Today, just over a month later, we got the answer ahead of JPM’s investor day, when JPMorgan said it will increase its reserves for oil and gas loans by 60% in Q1.

As you can see from the following slide, provisions will rise by $500 million from $815 million the bank had set aside as of the end of last year. Metals and mining reserves will also rise, by $100 million.

Note also that the bank says it may be forced to provision another $1.5 billion should crude prices stay at or near $25 for an extended period of time.

As is apparent from the chart, Dimon’s “fortress” balance sheet includes some $19 billion in HY O&G exposure. We’re anxious to see if the vaunted billionaire will dismiss the enormous writedowns that are invariably coming in the next few quarters as a “tempest in a teapot.”

We also wonder which bulge bracket bank will be the next to admit that it’s woefully underreserved for 2016’s inevitable crude carnage.

“Canadians Should Be Concerned” As Energy Sector Job Losses Spike To 100,000 This Year

“Canadians Should Be Concerned” As Energy Sector Job Losses Spike To 100,000 This Year

It’s grim up north… and getting grimmer. Amid soaring suicide rates, Canada’s once-booming oil patch is rapidly accelerating its downward trajectory. “Canadians should be concerned in times like these,” warned Tim McMillan, president and chief executive of the Canadian Association of Petroleum Producers, noting that the oil and gas sector will see 100,000 job losses by the end of this year. Even if oil prices rise early and fast next year, Financial Post reportsit may take a while for Canadian oilsands to rebound as the industry has mothballed a number of long-term projects.

Over the past year, we have extensively chronicled the tragic story of Alberta – Canada’s once booming oilpatch – disintegrate slowly at first, then very fast, into an economic and financial wasteland:

And, in one of the latest articles of this sad series describing the Alberta “bloodbath”, we said that the worst casualty of Canada’s recession has been the local commercial real estate market, where office vacancies are about to surpass the aftermath of the (first) great financial crisis.

But, it turns out the biggest casualty of Canada’s recession, which unless oil rebounds strongly soon will follow Brazil into an all out depression, are people themselves. As CBC reports the suicide rate in Alberta has increased dramatically in the wake of mounting job losses across the province.

Sadly, as The Financial Post reports, the situation looks set to get worse… as policy uncertainty has exacerbated the pain of low prices

…click on the above link to read the rest of the article…

“It’s A Bloodbath” – Here Is The Biggest Casualty Of Canada’s Recession

“It’s A Bloodbath” – Here Is The Biggest Casualty Of Canada’s Recession

In the past year, we have extensively profiled the collapse of ground zero of Canada’s oil industry, Calgary, as a result of the plunge in the price of oil, in posts such as the following:

Since then it has only gotten worse for Canada, and as of two it culminated with the first official recession in 7 years.

Additionally, in September we profiled the expected collapse of the Calgary commercial real estate market when we reported that in Alberta Canada now has 1.7 million square feet of empty office space, the most in North America, with another 5.2 million under construction! After years of booming construction, the natural resource rich country is starting to feel the pinch.

Overnight Bloomberg followed up on this stunning deterioration when it, too, reported that “office-tower owners in Canada’s energy hub are about to feel the full force of the oil-price crash.”

Using data from real estate brokers including Jones Lang LaSalle Inc. and Avison Young, Bloomberg calculates that vacancy is already at a five-year high in Calgary and rents are the lowest since 2006 after thousands of office jobs were cut. Energy company tenants have now begun to ask for rental relief and are offering subleases for as little as half the going rate.

The backlog is even worse: five new office towers with about 3.8 million square feet (353,031 square meters) of space hits the market in the next three years.

…click on the above link to read the rest of the article…

It Gets Ugly in Canada

It Gets Ugly in Canada

“It’s an election about who will protect our economy in a period of ongoing global instability,” Stephen Harper, Prime Minister of Canada, announced on Sunday as he officially kicked off the campaign for the federal elections on October 19. He’d just asked Governor General David Johnston to dissolve Parliament.

“Now is not the time for the kind of risky economic schemes that are doing so much damage elsewhere in the world,” he said. “It is time to stay the course and stick to our plan.”

Stay what course, exactly? Because Canada is likely in the middle of at least a “technical recession.”

At first, there was hope that only the oil patch would be headed that way. Now the oil patch is already there. In the city of Calgary, Alberta, the epicenter of the oil bust, home sales plunged 14% in July year-over-year, according to the Calgary Real Estate Board (CREB). Year-to-date, homes sales are down 25%.

Despite months of assurances that the oil bust and the broader commodities rout won’t spread into the rest of the Canadian economy, they’re now beautifully spreading into it.

The Business Barometer Index of small business confidence dropped in July to 58.2, the worst level since mid-2009, a level that corresponds with a shrinking economy. “One normally sees an index level of between 65 and 70 when the economy is growing at its potential,” the report said.

That’s what Statistics Canada has been confirming for months: on Friday, it reported that GDP in May fell for a 5th month in a row.

“Much worse than the flat print expected by consensus,” is how Matthieu Arseneau, a Senior Ecoomist at National Bank Financial explained the phenomenon:

 

…click on the above link to read the rest of the article…

Chicken Little Meet the Friends of Science

Canada’s leading climate conspiracy theorists, the Friends of Science, are out this week with a critique on climate change that would make even Chicken Little blush.

In a press release issued Thursday, the Friends of Science state that if plans proceed to move our country away from carbon-intensive fuel sources like oil and coal, “Canada would have to be completely shut down in order to reach the emissions reduction targets, leaving millions of Canadians unemployed.”

The Friends of Science are no stranger to hyperbole, which is on full-display on the homepage of their website promoting all sorts of pseudo-scientific climate science conspiracy claims.

The FOS is also no stranger to controversy.

Many longtime DeSmog readers will know that a few years ago this group was outed in an investigative piece by the Globe and Mail for its ties to the Alberta oil patch and Conservative Prime Minister Stephen Harper.

I am reluctantt to address these latest Chicken Little claims by the Friends of Science, because arguing back at them is exactly what they want and could be mistaken for a sliver of a legitimate place in the debate about how to solve the issue of climate change and transition the world from polluting fossil fuels to clean energy.

And quite frankly, as I pointed out last week, a group like the FOS who still readily claim that climate change is “big green propaganda” and nothing to be concerned about, has no place in a debate about how to deal with a problem they don’t .

 

Another 5,000 Victims Of The Plunge In Oil Prices

Another 5,000 Victims Of The Plunge In Oil Prices

Yet another energy company is struggling to save money in the face of unexpectedly low oil prices. Weatherford International, one of the world’s largest oilfield services company, will cut 9 percent of its global workforce in the next two months to save more than $350 million a year.

The vast majority of the layoffs – 85 percent, or 4,250 workers – will be felt in the United States and Western Europe. The company, which has operations in more than 100 countries, now has about 56,000 employees. Weatherford also will offer voluntary buyouts to certain eligible employees to reduce its workforce further.

“We will focus the entire organization on ensuring we are cash-flow positive in 2015,” the Swiss-based company’s CEO Bernard J. Duroc-Danner said in a statement late Wednesday. “This means that for every dollar of revenue we lose due to reduced activity and pricing, we will make up for it in cost, capital expenditure and working capital reductions.”

Because of the drop in oil prices, oil companies and ancillary services like Weatherford are losing business. Nevertheless, Duroc-Danner said Weatherford will keep its eye on ensuring a positive cash flow throughout 2015. Last year it began selling off subsidiaries and cutting costs in other ways, raising about $1.8 billion in cash, most of it to pay down debt.

…click on the above link to read the rest of the article…

 

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