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This Data Shows The Shale Debt Crisis Is Hitting Record Levels

This Data Shows The Shale Debt Crisis Is Hitting Record Levels

The bankruptcies are continuing fast and furious across the energy sector. With the ill-effects spreading beyond just the oil and gas business — evidenced by major renewables firm SunEdison filing for Chapter 11 last month.

But the U.S. E&P sector still remains one of the biggest unknowns when it comes to bad loans. With numerous observers having recently warned about a big wave of defaults coming in this space. Related: Why Canada’s Oil Industry May Never Be the Same

And a new data point late last week suggests we may be reaching a tipping point.

That came from leading American investment bank JPMorgan. Which said in an SEC filing Friday that its holdings of potentially bad loans took a major jump over the past quarter.

JPMorgan reported on its holdings of “criticized” loans — a term used in the banking industry to refer to “substandard or doubtful” debts. With the bank saying that its criticized loan portfolio leapt by 45 percent over the last quarter — to $21.2 billion as of March 31, up from just $14.6 billion at December 31, 2015. Related: Venezuela’s Electricity Blackout Could Cut Off Oil Production

The 3-month increase of $6.6 billion was driven mainly by one sector — oil and gas. With the value of JPMorgan’s criticized oil and gas loans rising $5.2 billion over the last quarter. (Criticized loans to the mining and metals sector also jumped 55 percent during the quarter — although the total increase was much smaller, at just over $600 million.)

All told, JPMorgan’s exposure to criticized oil and gas loans now totals $9.7 billion — up from $4.5 billion at the end of 2015.

The bank did note most of these loan holders are still paying their bills. With “only” $1.7 billion worth of criticized oil and gas debt being categorized as “non-performing”. However, that was a 665 percent rise from the previous quarter — when only $222 million in loans were declared non-performing. Related: How The Debacle At Doha Marked The End Of An Era

All of which confirms what we’ve been seeing anecdotally the last few months: the E&P sector is hitting the wall when it comes to debt. Watch for more bankruptcies coming — as well as issues emerging at U.S. banks due to growing exposure to bad energy loans.

Here’s to taking cover

By Dave Forest

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