The Shale Industry Could Be Swallowed By Its Own Debt

[Purveyor]

by Asjylyn Loder
June 18, 2015 — 7:00 PM EDT
Updated on June 19, 2015 — 1:23 AM EDT

The debt that fueled the U.S. shale boom now threatens to be its undoing.

Drillers are devoting more revenue than ever to interest payments. In one example, Continental Resources Inc., the company credited with making North Dakota’s Bakken Shale one of the biggest oil-producing regions in the world, spent almost as much as Exxon Mobil Corp., a company 20 times its size.

The burden is becoming heavier after oil prices fell 43 percent in the past year. Interest payments are eating up more than 10 percent of revenue for 27 of the 62 drillers in the Bloomberg Intelligence North America Independent Exploration and Production Index, up from a dozen a year ago. Drillers’ debt ballooned to $235 billion at the end of the first quarter, a 16 percent increase in the past year, even as revenue shrank.

“The question is, how long do they have that they can get away with this,” said Thomas Watters, an oil and gas credit analyst at Standard & Poor’s in New York. The companies with the lowest credit ratings “are in survival mode,” he said.

The problem for shale drillers is that they’ve consistently spent money faster than they’ve made it, even when oil was $100 a barrel. The companies in the Bloomberg index spent $4.15 for every dollar earned selling oil and gas in the first quarter, up from $2.25 a year earlier, while pushing U.S. oil production to the highest in more than 30 years.

“There’s a liquidity issue, and you start looking at the cash burn,” Watters said.

more...

http://www.bloomberg.com/news/articles/2015-06-18/next-threat-to-u-s-shale-rising-interest-payments

[Fearless]

1. As I said last year, OPEC is intentionally lowering prices

To eliminate competition.

[djean111]

2. I smell a bailout.

[Purveyor]

3. Guaranteed but not until 2017 when the GOP rules all of DC. eom

[djean111]

4. Oh, I do not think the current administration is all that against bailouts. Depends on

which BFFs have invested in fracking. And it is not like the administration cares what voters think any more.

[Purveyor]

5. Well considering their push fast-track, you could be right. Obama is paying the piper it seems in

his last 18 months in office.