• 4 minutes Pompeo: Aramco Attacks Are An "Act Of War" By Iran
  • 7 minutes Who Really Benefits From The "Iran Attacked Saudi Arabia" Narrative?
  • 11 minutes Trump Will Win In 2020
  • 15 minutes Experts review Saudi damage photos. Say Said is need to do a lot of explaining.
  • 1 min Ethanol is the SAVIOR of the Oil Industry, Convenience Store Industry, Automotive Supply Chain Industry and Much More!
  • 4 hours Let's shut down dissent like The Conversation in Australia
  • 3 mins One of the fire satellite pictures showed what look like the fire hit outside the main oil complex. Like it hit storage or pipeline facility. Not big deal.
  • 10 hours Saudi State-of-Art Defense System looking the wrong way. MBS must fire Defense Minister. Oh, MBS is Defense Minister. Forget about it.
  • 19 hours Donald Trump Proposes Harnessing Liberal Tears To Provide Clean Energy
  • 18 hours Saudis Buying Oil From Iraq
  • 19 mins Ethanol, the Perfect Home Remedy for A Saudi Oil Fever
  • 12 hours Trump Accidentally Discusses Technology Used In The Border Wall
  • 10 hours Hong Kong protesters appeal to Trump for support.
  • 3 hours Collateral Damage: Saudi Disruption Leaves Canada's Biggest Refinery Vulnerable
  • 1 day Drone attacks cause fire at two Saudi Aramco facilities, blaze now under control
  • 19 hours Saudis Confirm a Cruise Missile from Iranian Origin
  • 3 hours Iran in the world market
Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

More Info

Premium Content

Oilfield Service Companies May Struggle To Pay Debt

The oilfield service sector has been on the path of recovery from the 2014 industry downturn, but just when the industry says things are starting to look up, Moody’s has begged to differ. In a recent announcement, the credit ratings agency said that U.S. oilfield services providers will find it hard to pay down their debt over the long term unless they boost their cash positions in the short term.

"US oilfield services and drilling companies' high debt levels will continue to constrain their credit quality in 2019 and beyond," a senior Moody’s analyst said. "The largest firms are significantly better positioned to regain their credit strength next year than the smaller ones, though the threat of balance sheet restructuring will persist, particularly for the latter," Sreedhar Kona added.

The latter part of this statement is unsurprising: big players are invariably better positioned to weather the fallout from a price crisis than smaller rivals. Yet the reminder about still too-high debt levels could surprise some who bought the upbeat stories about the industry recovery.

The truth is that the industry is indeed recovering, and the latest quarterly figures from the top two, Schlumberger and Halliburton, are proof enough. However, this sort of recovery cannot be sustainable: it is in large part driven by higher oil prices, and oil prices are not a good choice as the only foundation of long-term business sustainability.

The business knows this. In fact, oilfield service providers are likely more aware of the risks inherent in relying too much on oil prices for your financial performance than E&Ps, which are also struggling with heavy debt burdens. Related: Full U.S. Energy Independence Is Impossible

U.S. oil producers are facing debt of US$240 billion maturing until 2023, of which some 15 percent will be rated with the lowest rating of Caa, Moody’s said in an earlier report. The good news is that the majority of these bonds are rated B or more, but the bad news is that the portion of low-rating debt will rise from 6 percent next year to 15 percent in 2020 and stay at this level over the following three years.

In oilfield services, things are not looking better. Moody’s noted in its announcement credit quality in the industry had declined substantially over the last decade, with the average debt-to-EBITDA ration rising to more than 4.5x last year from just below 1.5x in 2007. The ratings agency noted that in the first half of that decade, debt rose at rates that were higher than the rate of earnings improvement and then, in the two years that followed the 2014 meltdown cash flow in the sector fell by almost a third, increasing the debt burden of sector players.

Not all is bleak, however. In fact, for those focused on onshore field development and maintenance, things are looking up, at least according to Moody’s. Kona noted in the announcement that the boost in onshore drilling in the United States has provided new growth opportunities for oilfield service providers. Offshore, the situation is still difficult, and a recovery is years away, the ratings agency’s analysts estimate.

Yet onshore drilling is in a delicate balance as well, if we keep the leverage ratios of E&Ps and assume that the transportation constraints will continue where the most of this pick-up in drilling is occurring: the Permian. Many Permian producers are selling their light crude at a discount because of these transport constraints and that’s doing no favors to their debt levels, and, consequently, to service providers’ debt levels and cash positions.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage



Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play