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U.S. Oil Companies Face $240 Billion Debt Mountain

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 a new report quoted by Kallanish Energy.

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.

Of the total debt maturing by 2023, US$31 billion has the lowest rating, Moody’s VP Paresh Chari said in the report. Another US$23-24 billion of debt is rated B through Baa. In 2019, the analyst said, only a small portion of the low-rating debt will need to be repaid but its share of the total maturing debt in 2020 will jump to 35 percent in 2020, then declining to about 20 percent for each of the three years to 2023.

Unsurprisingly, exploration and production companies account for the bulk of the total US$240 billion maturing by 2023, at US$93 billion.

Debt levels among U.S. E&Ps has had some analysts and industry observers worried in the past few years despite the recent recovery in oil prices. During the downturn more than 140 companies filed for bankruptcy, according to data from Haynes & Boone, cited by the Houston Chronicle, with their combined debt reaching US$90 billion.

Related: “Profit Secrets of the World’s Most Successful Energy Investors”

Now things are looking up with oil recovering from less than US$30 to over US$70 a barrel but the uncertainty remains and some industry observers worry that despite cost improvements, high debt levels could yet play a bad joke on exploration and production companies that keep borrowing to boost production and benefit from the higher prices.

Here’s how a Saudi financial services firm, Al Rajhi, explains it to energy historian Ellen R. Wald: “Given the higher decline rate from shale wells and their relatively short life as compared to conventional wells, the shale producers need to accelerate capex spending to maintain production rates. Accordingly, the rise in capital spending puts the producers deeper in debt, reflecting in rising total debt for these companies amid rising interest rates.”

While one may well argue any Saudi analysis of U.S. shale oil will be biased, the fast decline-rate of frack wells is a fact and so is the debt. It remains to be seen how the E&Ps handle the situation.

By Irina Slav for Oilprice.com

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  • EHLipton on October 10 2018 said:
    Just as in football, the field is only so far goal post to goal post. Just cause ya gotta quarter back with a good arm don't mean you gotta go LONG to gain yardage

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