Oil Companies Expected to Default

Unpaid debt incurred by oil companies to pay for new drilling equipment and rigs could lead to a number of them defaulting. According to CNN, many of these companies had expected prices for oil to hit the $100 range when they incurred the debt and are now contending with oil prices of about $45 and no sign of the original expectation being met in the near future.

Unlike a year ago, when low interest rates and junk bond markets helped spur the energy boom in the United States and inexpensive credit let companies invest in new technologies for oil drilling, there has been a rise in credit costs. At ETF.com’s recent Fixed Income Conference, DoubleLine Capital founder Jeffrey Gundlach said that while US production of oil has slowed, the inventories for domestic crude oil levels have stayed high.

In August, Moody’s Investors Services said that it expected more US oil companies to default because banks have become stricter about lending standards and contracts that had committed to higher crude prices for production in the future get set to expire. The credit rating agency said that the energy sector would be a main default driver in 2016.

According to Fuel Fix, from April to June 2015, several companies defaulted including:

· Sabine Oil & Gas Corp.
· American Energy Partners’ Woodford unit · Halcon Resources Corp.
· Venoco · Midstates Petroleum Corp.
· Warren Resources · RAAM Global Energy Co.

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Moody’s Expects More Oil Companies To Default As Banks Restrict Lending, OGFJ.com, August 4, 2015

Warning: Oil company defaults are coming, CNN Money, November 6, 2015