Crude Slump Sees Oil Majors' Debt Burden Double to $138B

Philippe  |  August 06, 2016

Why do analyst don’t understand that the debt load on majors are high? First, it is high with respect to earning, since the Bent and WTI are 50% of the 2014 value, the percent debt load will be much higher. The majority of these loans were made prior 2014 with the crude oil price above $80/$120. These were the market conditions than. Most majors finances their project on the prevalent rate plus one or two percent. They are variable rates. The debt load is high but the payments are lower because the interest is lower. Many majors pay off the loan first and do not take a profit until the loans are paid off. This permits the majors to take a loss when declaring their income taxes. The majors amortize the loans over the average O&G market cycle, which is 5 years, give or take a couple of years. The chances are that all loans taken in 2011 are, more or less, paid off. Loans taken in 2014 have another 3 years to be paid off. By 2019 the consensus is that crude oil price should be $80/$100 per barrel. To state that the majors have a growing debt is aberrant. So the same analysts will say in 2 years that the majors are lean and clean. Presently in year 2 of this crash, the like of XOM will survive and bounce back as it always has. Those that will not survive are the EPs that borrowed near 100% of their capital; those are small players without a long term vision of this O&G market.