Default Worries Close Bond Market Door To E&P Names


NEW YORK, July 24 (IFR) - US oil exploration and production (E&P) firms are again seeing their access to debt capital markets shrink, after a slide in oil prices put worries about defaults back on the radar.

The price of WTI crude, the US benchmark, is down 18% this month, raising fears that banks will cut lines of credit in the next biannual review of asset-based revolvers this autumn.

That could push some of the most stressed E&P companies close to default, especially if - as many expect - oil prices remain depressed for the foreseeable future.

"Firms are approaching a period of greater stress as it has been over six months since the plunge in oil prices," UBS analysts Matthew Mish and Stephen Caprio wrote in a note to clients this week.

"Historically, energy company defaults rise nine to 12 months after price declines as hedges roll off and liquidity is used up."

Just a little more than a year ago, in June 2014, crude was north of US$110 a barrel, a level that naturally tempted many companies to forecast overly optimistic revenues - and dramatically expand expensive drilling operations.

But with the ink still drying on a nuclear deal with Tehran that will bring Iranian crude to market - not to mention waning Chinese demand - prices have kept plunging to under US$50 now.


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