Low oil and gas prices are close to triggering a wave of bankruptcies and debt defaults among US producers, investors fear. The fall in the oil price to levels that are punishingly low for producers is putting up to $88bn of borrowings potentially at risk.
About 30% of the oil and gas industry’s debt is now said to be at distressed levels – meaning companies are experiencing financial or operational problems severe enough to put them at risk of default or bankruptcy.
Producers, especially those fracking for shale gas, have borrowed heavily in the past few years and are now counting the cost as revenues tumble. From around $115 a barrel in July 2014, oil is now hovering nearer $30 a barrel, with fears of a continuing glut. This comes after a shale gas boom in the US coincided with low interest rates in the wake of the financial crisis.
“We effectively had free credit for seven years and an energy transformation, so a lot of capital went into that,” said Leslie Biddle of Serengeti Asset Management, a $1.5bn US hedge fund with significant oil and gas investments. “But now the capital markets to exploration and production have shut.”
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