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The Shale Party's Over: "Closed" Bond Market Means "Restructuring Is Inevitable"
With the market's perceived risk of default across the energy space at record highs, it should be no surprise that willingness to lend (even for the greater-fool reach-for-yielders) is collapsing. As Bloomberg reports, oil services companies are finding alternative ways to raise cash and repay debt after falling crude prices has made it difficult for them to get funding from traditional sources. As one restructuring firm warned, "bond markets are closed for these companies, especially small ones, and banks may not be lending to them at this stage," with another ominoulsy warning, "getting new liquidity in this market could be a painful exercise. For many companies, financial restructuring seems inevitable."
Credit risk for Energy firms has exploded...
As Bloomberg Briefs reports, energy companies are being shut out of bond markets and lenders are reducing credit lines after prices dropped about 60 percent from last year’s peak.
Services companies in Europe are starting to run out of cash as producers from Royal Dutch Shell Plc to Petroleo Brasileiro SA cut their own investments and delay projects.
“Bond markets are closed for these companies, especially small ones, and banks may not be lending to them at this stage,” said Nigel Thomas, partner at law firm Watson Farley & Williams in London. “Services companies need to buy time to survive during the downturn and alternative investors are able to give them that, albeit at a very expensive cost.”
Bonds issued by oil-services businesses globally dropped to $6.7 billion this year, on pace for the least in a decade, according to data compiled by Bloomberg. French oilfield surveyor CGG SA said it had to cancel a loan in July because banks had offered unfavorable terms.
Charts: Bloomberg
Energy-services companies are searching for new investors and funding strategies as even lenders of last resort pull back. Hedge funds and private-equity firms that previously sought to lend at high rates are becoming reluctant to step in after getting stuck with losing positions.
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However, the situation is even worse than that, as The Wall Street Journal reports, banks are clashing with regulators over loan reviews that could crimp the flow of new credit to the oil patch.
The dispute is focused on the relatively narrow issue of loans secured by oil and gas companies’ reserves, but it highlights the much broader point of how postcrisis regulation of the financial industry is affecting sectors far from Wall Street.
On one side are the bankers who have been grappling with the plunge in oil prices and the need to shore up billions of dollars in credit extended to the energy industry. On the other are regulators eager to prevent another financial crisis while not knowing what it might be.
Caught in the middle are the small- and medium-size exploration and production companies that rely on credit lines that use their energy reserves as collateral. Banks are now beginning their fall reviews of the quality of that collateral and worry regulators could ding them for making loans the banks think are prudent.
...
“We disagree with the regulators,” said Francis Creighton, executive vice president of government affairs at the Financial Services Roundtable, an industry trade group. “These are good loans, they have a history of performing…we think their analysis is incorrect on this.”
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So far, the regulators’ approach is winning out.
“It all flows downhill,” said Steve Moss, a bank analyst at Evercore ISI. “If the regulators are going to be tougher on the banks, expect the banks to be tougher on the borrowers.”
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Leaving the endgame inevitable...
“The service industry is under enormous pressure as oil companies continue to strive for significant cuts,” said Terje Fatnes, an analyst at SEB Enskilda AS in Oslo. “Getting new liquidity in this market could be a painful exercise. For many companies, financial restructuring seems inevitable.”
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All aboard the layoff train! TOOT TOOT!
So, jobs are what you morons actually care about.
I can go dig a hole and ask Keynes to fill it with cash for you to dig up.
You matter.
Good candidate for a critical mass default.
Don't use me to promote your shitty blog.
Adblock, etc.
Oil services giant Schlumberger's stock has been hit hard due to lower oil prices (and presumably able to sell fewer services). SLB is perhaps the best of the oil services companies.
The stock is up today because SLB decided not to buy Russian company Eurasian Drilling. Smart move on SLB's part.
http://www.bizjournals.com/houston/blog/drilling-down/2015/09/halliburto...
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Houston drilling co. abandons drilling businesshttp://www.bizjournals.com/houston/news/2015/09/22/houston-drilling-co-a...
Moar Green shoots.
Nah. I just have a very dark sense of humor.
I think we'll know the "jig is up" when public workers/parasites start getting pink slips. Of course you'll have the hand wringing of how everyone's safety and the "children's future" is in danger, etc. etc.
Things are getting real, but until ".gov" starts feeling the pain, there is no telling how long this shit-show could go on.
Wake me up when it’s time to vote.
20,000 layoffs at Haliburton coming. Toot toot .. .
http://seekingalpha.com/article/3531306-halliburton-internal-memo-and-sources-warn-up-to-20000-layoffs-cominghttp://www.bizjournals.com/houston/news/2015/09/24/transcanada-announces...
I'm sure that there are a variety of reasons why the price of oil plummeted to $40/BL.
But if you wanted to put together a CONSPIRACY THEORY - and argue that this was a clever move by the Saudis to destroy the US Shale Industry and eliminate America's energy independence - well, it's a plausible proposition.
This is all pretty much self-inflicted with the help of creatures like GS floating HY bonds for the optimists in the oil patch. There's a big shake out coming and the blood will run deep......
The Conspiracy Theory may be deeper than that
Once interest rates are raised the US dollar skyrockets and the defaults in EM dollar based loans will be huge - Petrobras etc - 3 years ago Leon Black made big point to PE to sell everything that wasnt tied down - get enormous liquidity for the buy(s) of the last 150 years worldwide -
the US shale industry is a rounding error of what the opportunities will be
think - countries and industries - Greece on steroids - land, buildings, airports, lotteries, mineral reserves (Glencore?) all financed favorably by the Fed - 30-50 year terms - coupled with the TTP / TTIP providing cover > sovereignty gone > cash flow out of the respective countries on "astronomical rents" > Tribunals negate local laws post sale = to protect these guys
The Rape & Pillage standard will be: Fuck em hard - Fuck em deep
the next step is Trillionaires - a lot of them!
At a 1000bps spread, can't say I wouldn't fault anyone for buying that...unless you think the Fed will actually raise rates.
"The last time Europe's serfs suddenly found themselves in huge demand was after the Black Death in the mid-14th century. They say it ended feudalism."
The problem is the crappy infrastructure destroying everything in its path, built for the purpose, of artificial scarcity, not the size of the human population, which would fit in a Polish mine pit, which is where many will find themselves in the not-too-distant future.
War is ramping up as demographics fall off the cliff. In the empire, they do everything backwards, trying to prove that they are in control. Just ask Yellen where interest rates are going.
“Like all royals at the time they lived in luxury, were worshipped by the other aristos and the middle class, but they didn't give a stuff about the starving peasants and working class. So in the end they deserved just what they got. Canonising these despots is merely typical of the church…”
“If you think the Tsar was bloody then look what replaced him. An evil Communist dictatorship, based upon fear, torture, murder, the Stassi, the KGB, gulags and the authorities building an iron curtain to stop people escaping.”
Modern day Royals: Kuwait, Oman, Bahrain, Qatar, Saudi Arabia, Morocco, UAE's and United Kingdom, The Netherlands, Belgium, Sweden, Denmark, Norway, Spain, Monaco, Luxembourg, Leichtenstein, and all Commonwealth Nations related to the above.
The "near royals" are the ones who the royals are always afraid of the most... the Bin Ladens, for instance. They have both means and motives to do harm to the ordered systems of the royals. The HFT's and Algo traders are paying for order flow because they know the counter-cyclical DSGE Fed Model is easily manipulated when stock market volume dries up.
It seems that the Fed should raise rates for that reason alone, because it's these "near royals" who are manipulating our conomy down the drain!
Meanwhile, US indexes on the verge of green for the day
Why did it take so long
Now we will soon find out how "cheap" this oil really was. I think the final bill will show that peak CHEAP oil has already arrived, irrespective of the currently "cheap" (subsidized by cheap credit that cannot be paid back) oil prices.
IT AINT JUST SHALE! What about the deepwater companies- Transocean (RIG) ENSCO (ESV) Noble (NE)? And what about the Tar Sands (SU)?
From my personal inspection, ND oil biz reminded me of eating cellery. It takes more energy to extract than is recovered. A geophysicist I talked to called ND oil "Stranded Assets". Among the crown jewels of ND are Home of Economy and Acme Tool (amazing stores)