• 4 minutes England Running Out of Water?
  • 7 minutes Trump to Make Allies Pay More to Host US Bases
  • 10 minutes U.S. Shale Output may Start Dropping Next Year
  • 14 minutes Washington Eyes Crackdown On OPEC
  • 18 hours One Last Warning For The U.S. Shale Patch
  • 5 hours Oil Slips Further From 2019 Highs On Trade Worries
  • 3 hours Once Upon A Time... North Korea Abruptly Withdraws Staff From Liaison Office
  • 14 hours Modular Nuclear Reactors
  • 22 hours Chile Tests Floating Solar Farm
  • 4 hours Poll: Will Renewables Save the World?
  • 2 days China's E-Buses Killing Diesel Demand
  • 2 days Trump sells out his base to please Wallstreet and Oil industry
  • 1 day China's Expansion: Italy Leads Europe Into China’s Embrace
  • 2 days Trump Tariffs On China Working
  • 2 days Russian Effect: U.S. May Soon Pause Preparations For Delivering F-35s To Turkey
  • 2 days Biomass, Ethanol No Longer Green
  • 1 day US-backed coup in Venezuela not so smooth
  • 1 day New Rebate For EVs in Canada
Alt Text

After Libya And Venezuela, Is This The Next OPEC Wildcard?

Anti-government protests in the North…

Alt Text

World’s Top Commodity Trader Sees Peak Oil Demand Looming

Vitol, the world’s largest independent…

Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

More Info

Trending Discussions

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

Trending Discussions


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News