“On The Cusp Of A Staggering Default Wave”: Energy Intelligence Issues Apocalyptic Warning For The Energy Sector
Submitted by Tyler Durden on 11/27/2015
The Energy Intelligence news and analysis creator and aggregator is not one to haphazradly throw around hyperbolic claims and forecasts. So when it gets downright apocalyptic, as it did this week in a report titled “Is Debt Bomb About to Blow Up US Shale?”, people listen… and if they are still long energy junk bonds, they panic.
The US E&P sector could be on the cusp of massive defaults and bankruptcies so staggering they pose a serious threat to the US economy. Without higher oil and gas prices — which few experts foresee in the near future — an over-leveraged, under-hedged US E&P industry faces a truly grim 2016. How bad could things get?
The full report by Paul Merolli, a senior editor and correspondent at Energy Intelligence:
Debt Bomb Ticking for US Shale
… How bad could things get and when? It increasingly looks like a number of the weakest companies will run out of financial stamina in the first half of next year, and … there are waves of others that also face serious trouble if the lower-for-longer oil price scenario extends further. …
Many believe all of these issues will come to a head in first-half 2016, as the effect of fewer hedges is felt and banks once again reassess credit lines in April. … The confluence of these factors could be the catalyst that finally spurs a long-awaited tidal wave of mergers and acquisitions throughout the sector (EIF Oct.28’15). … Watters describes an “M&A playland” for strong companies with investment-grade credit ratings, noting that the six largest integrated majors together hold a war chest of some $500 billion.