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Funds For Fracking Finally Dry Up: One Last Hail Mary Pass Remains
Is Saudi Arabia on the verge of winning the war on US Shale firms? It appears the spigot of malinvestment-subsidizing liquidity that kept numerous zombie energy firms alive has been shut off almost entirely. As oil prices return to cycle lows, so credit risk has spiked to record highs and issuance of life-giving bonds has collapsed. As Reuters reports, this has opened up opportunities for deep-pocketed private equity firms to push for restructuring or buy assets as many oil companies need cash to replenish banks' slimmed-down lending facilities, service their bonds and finance drilling of new wells to keep pumping oil and sustain cash flow.
Credit risk has soared back to record levels...
As public market demand for this sector has collapsed...
And as Reuters reports, this has pushed Shale firms into the willing-to-deal-at-much-lower-prices private equity business...
Throughout much of the crude market rout that started in mid-2014 oil firms could rely on generous capital markets investors betting on a quick recovery in prices, which made any asset sales look unattractive. But since crude prices began tanking again in early July after a partial three-month recovery, oil firms have finally started to feel the squeeze.
A torrent of $44 billion in high-yield debt and share sales in the first half of this year has slowed to a trickle with oil now at just above $42 a barrel, 30 percent below its June levels and 60 percent down from June 2014, CLc1 and a more pessimistic view taking hold that global oversupply could keep oil cheap for years.
The number of high-yield bond and share issues has tumbled more than two-thirds from levels seen in May, Thomson Reuters data show.
That opens up opportunities for deep-pocketed private equity firms to push for restructuring or buy assets as many oil companies need cash to replenish banks' slimmed-down lending facilities, service their bonds and finance drilling of new wells to keep pumping oil and sustain cash flow.
“The capital markets showed up in force in the first quarter much to everyone's surprise," said Carl Tricoli, managing partner at Denham Capital, a private equity fund in Houston.
"It didn't solve people's problems, so now when you roll to 2016 ...there will be an opportunity for private equity-backed companies with plenty of capital in place to go out and start buying."
On Monday, shale producer Magnum Hunter Resources Corp. (MHR.N) said it would get an unnamed private equity fund to pay for up to $430 million of drilling work in Ohio in return for rights to the land.
Dealmakers say potential sellers of oilfield assets are now discussing bids they would have rejected a few months ago while the changed outlook for oil allows buyers to adjust bids down.
But hope is fading as Bill Conway, co-CEO of The Carlyle Group, a giant in alternative funding, struck a cautious tone...
"I would say, this is a good time to be careful when it comes to investing in energy."
Perhaps that explains this divergence...
Except investors seem not to realize that the PE shops will only deal at much lower prices - which is what the credit market already implies.
Charts: Bloomberg and Reuters
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Good news for aquifers and potable water.
WWIII over oil sooner or later.
WWIII in the Middle East already, which explains the hundreds of thousands of refugees fleeing the war zone to escape the Obama-sponsored proxy killers.
So I guess Share buybacks are out of the question?.......:-)
Cracks me up that the MSN gets taken seriously when they are told to say "it's the Saudi's flooding the oil market."
C'mon. Wake up! Obama has unleashed the Strategic Oil Supply and 'merica has been dumping Texas Tea on the market. Shale and its filthy cousin tar sands are the new strat. oil supply.
The reasons are three fold or more.
1 Show those Ruskies just how far we are willing to go in a vain attempt to stop BRICS. Now it's China's turn to be the whipping boy. Good Fuckin' luck.
2 Since only finished products are accounted for while faking consumer price inflation, $57.00 a wk. labor isn't enough anymore. Oil byproducts make up most of the plastic shit- so crush oil. The energy that powers manufacturing plants is too much- so crush oil.
3 Has gas, heating fuel, pesticides, and any other useful materials and commodities, which are derived from oil, come down 65% in the last year? Hell no.
"merica needs this play to make it appear that the Buck still is worth sumpin' and especially to pretend that there is less than 2% CPI. Otherwise, it would mean it's time to normalize interest rates.... Which would take the entire budget to service the 18+++++ debt, while crushing equities, bonds but mostly the 700 trillion++++ OTC derivatives scam.
So all you suckers that are screaming deflation are Fucknuckles.
I'm sorry to say that the west will go to any length to crush the BRICS as they are over 40% of this planets population.
"40% of this planets population."
Controlling domestically exactly how much recoverable light sweet crude? Thought so. If Saudi Arabia couldn't pull it off with under 30,000,000, no one else is even worth talking about.
The only thing needed to stop Brazil, Russia, and China is exactly the same thing needed to crush tight oil: any price below $100. The lowest of the three, Rosneft's breakeven was $100 ... about 3 years ago - and Russia (like US tight oil) peaked this year.
"So all you suckers that are screaming deflation are Fucknuckles." Sorry but I won't take your inane word for it. If you can't fathom rising nominal prices in what is a fundamentally deflationary environment, you are either an economist or the victim of an economist.
There is no need to lift a finger against the BRICS, they were a hopium-filled marketing strawman attempting to ignore physics.
My hailmary is buying as much silver as possible.
navy be so excited to finally have some arctic war
Energy producers be too big to fail. #bailoutclub
not sure where that energy stock chart is coming from, certainly not from OAS, MEMP, LGCY, or any of the others with shale exposure
Yup called my monopolistic electric supplier and inquired as to why the "generation" side of my electric bill has not gone down like 50% based on the fact that their raw material inputs for the most part have cavitated. They said there is a delay before rates actually adjust. Wellllllll we are now past the point of the delay so what is the new excuse?
All the cheap high-quality anthracite is gone. Burned up for nothing. With it went the purchasing power of soft currency money. Does that clear things up?
Your electric company is going to raise rates for the same reason the British empire collapsed.
I'm worried about the hookers and drug dealers being out of work once fracking stops.
This dreams that US$40 oil will crush Russia and tar sands is just that, a dream.
When I was in university in Alberta, it costs Syncrude US$17 to get the oil out of the sand....that was in teh eighties. Its likley US$14 or less now. And recall, like Russia the Tar sands overheads are in local currency, not US$.
Russia and Alberta are profitable well below US$30. ALL, and I do mean ALL offshore oil is not. ALL fracking oil is NOT.
Good luck wiht the thesis though.
Squid
Did that $17 cost include Syncrude paying their truck drivers $200K/yr?