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Terrible Timing For An OPEC Failure

Friday March 31, 2016

In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

1. Oil prices fall ahead of credit redetermination

(Click to enlarge)

- Creditors periodically review their portfolio of loans to energy companies, reassessing whether or not to adjust credit lines based on shifts in market conditions, the likelihood of oil reserves being produced, and the company’s profitability.
- The credit redeterminations happen twice a year, once in April and again at the end of the 3rd quarter. The average borrowing base fell by 16 percent in 2016. Smaller companies operating on the margins could see much more severe reductions.
- Credit redetermination is about to get underway across the industry, just as oil prices lost roughly 10 percent of their value. A drop below $45 per barrel would likely lead to large credit reductions for many oil producers, according to Bloomberg.
- Lenders have been lenient for the most part during the past three years – cutting credit could pull the rug out from underneath the oil producers, leading to less likelihood that the lender gets paid back.

2. Saudi tax cuts for Aramco

(Click to enlarge)

- The Saudi government just announced a tax cut…




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