• 3 minutes Will Iron-Air batteries REALLY change things?
  • 7 minutes Natural gas mobility for heavy duty trucks
  • 11 minutes NordStream2
  • 2 hours GREEN NEW DEAL = BLIZZARD OF LIES
  • 2 hours U.S. Presidential Elections Status - Electoral Votes
  • 2 days Evergrande is going Belly Up.
  • 8 hours Is China Rising or Falling? Has it Enraged the World and Lost its Way? How is their Economy Doing?
  • 17 hours Monday 9/13 - "High Natural Gas Prices Today Will Send U.S. Production Soaring Next Year" by Irina Slav
  • 1 day Poland Expands LNG Powered Trucking and Fueling Stations
  • 2 days World’s Biggest Battery In California Overheats, Shuts Down
  • 15 hours The unexpected loss of output from wind turbines compels UK to turn to an alternative; It's not what you think!
  • 2 hours Ten Years of Plunging Solar Prices
  • 6 hours Extraction of gasoline from crude oil.
  • 3 days The coming Cyber Attack
  • 3 days Is the Republican Party going to perpetuate lies about the 2020 election and attempt to whitewash what happened on January 6th?
  • 3 days Ozone layer destruction driving global warming
  • 3 days 'Get A Loan,' Commerce Chief Tells Unpaid Federal Workers
Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

More Info

Premium Content

U.S. Shale In For New Wave Of Pressure As Hedges Expire

Despite oil prices plummeting over the past year, falling from around $100 per barrel to now under $60 per barrel, the U.S. shale industry has proved resilient. There have been a few bankruptcies and a significant decline in revenues for drillers across the board, but production has remained stable.

To be sure, there would have been more drilling companies going belly up if it had not been for the generous credit offered by bond and equity markets, and large financial institutions. Private equity has also jumped into the fray. The financial lifeline has kept the doors open for a lot of exploration companies. Related: Current Oil Price Slump Far From Over

But the rough waters are about to get rougher. That is because U.S. shale companies have been somewhat protected from the full vagaries of oil price swings up until now. Shale companies commonly hedge some of their production, locking in prices for which it can sell its product well ahead of time. That provides them with certainty and insulates them from huge price swings. Many companies secured high prices last year before the price crash.

Those positions are now starting to unwind. As they expire, small and medium sized shale companies will be more exposed to lower oil prices. For a company that had hedged a quarter or half of its oil production last year at $80 or $90 per barrel, they will now suddenly feel the pain of oil trading at $60 per barrel. Related: Top Shale Takeover Targets

Bloomberg estimates that 30 out of the 62 companies that it tracks in the Bloomberg Intelligence North America Exploration and Production Index had at least 15 percent of their first quarter revenue come from hedged positions. Last year that figure stood at 37 percent. But more and more of the hedged positions are expiring, so the 15 percent figure will fall even further.

That suggests that more companies could find themselves in a distressed position if oil prices do not rise. Bank regulators have even started to warn of the “emerging risk” associated with loans to struggling oil and gas companies. “We are beginning to see some deterioration in the credit quality of oil and gas loans to borrowers that used high volumes of debt to finance their growth over the past several years,” Grant Wilson, director of commercial credit for the Office of the Comptroller of the Currency, a banking regulator, told Bloomberg in an interview. Related:Oil Faces Steep Downside Risk From China’s Stock Market

Oil prices have bounced around the $60 per barrel mark, low enough to cause deeper financial stress for weaker companies. Unless the price rises significantly, there could be more defaults in the months ahead.

By Charles Kennedy of Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • Jah C on July 02 2015 said:
    "could be more defaults in the months ahead?" ... More like "WILL be more defaults in the months ahead." ...

    Frank Drebbin-like Cornucopians had better hope oil price begins to spike very soon. Interesting how U.S.-Iranian relations have begun to thaw just around the time the bill has come due for the unsustainable U.S. "shale oil revolution." ... The Ponzi scheme is almost up, and the soulless technocrats all know we will need Iran's increased production soon more than ever.

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News