Forecasters including Citigroup Inc. and Bank of America Corp. see U.S. crude falling further in the final six months of the year. UBS predicts prices will slide as low as $50 a barrel. With oil prices down 45 percent in the past year, the industry is facing scrutiny from lenders and their regulator. Banks typically evaluate credit lines to oil and gas companies twice a year. The next time is October, and by then many of the drillers’ hedging contracts will have run out. The U.S. Office of the Comptroller of the Currency has expressed concern that the banks it supervises be more careful about lending to energy firms.
“Some companies are not nearly as well-hedged for 2016 as they were for this year,” said Omar Samji, a partner in law firm Jones Day’s energy practice. “They’re going to have a real cash-flow crunch.”
The insurance protecting shale drillers against plummeting prices has become so crucial that for one company, SandRidge Energy Inc., payments from the hedges accounted for a stunning 64 percent of first-quarter revenue. Now the safety net is going away. The insurance that producers bought before the collapse in oil -- much of which guaranteed minimum prices of $90 a barrel or more -- is expiring. As they do, investors are left to wonder how these companies will make up the $3.7 billion the hedges earned them in the first quarter after crude sunk below $60 from a peak of $107 in mid-2014. “A year ago, you could hedge at $85 to $90, and now it’s in the low $60s,” said Chris Lang, a senior vice president with Asset Risk Management, a hedging adviser for more than 100 exploration and production companies. “Next year it’s really going to come to a head.” The hedges staved off an acute shortage of cash for shale companies and helped keep lenders from cutting credit lines, many of which are up for renewal in October. With drillers burdened by interest payments on $235 billion of debt, $89 billion of it high-yield, a U.S. regulator has warned banks to beware of the “emerging risk” of lending to energy companies. Payments from hedges accounted for at least 15 percent of first-quarter revenue at 30 of the 62 oil and gas companies in the Bloomberg Intelligence North America Exploration and Production Index. Revenue, already down 37 percent in the last year, will fall further as drillers cash out contracts that paid $90 a barrel even when oil fell below $44. Oasis Petroleum Inc., one of the most active drillers in North Dakota’s Bakken shale, received almost $91 a barrel for 19,000 barrels a day. That accounts for more than 40 percent of its daily production and is the biggest piece of its hedging program. At the end of June, the guaranteed price drops to $77, company records show. By January, the company will have just 2,000 barrels a day hedged at $65 a barrel.
Never heard of them but thanks for the heads up, I added them to my list and will start to watch. Had a hell of a week man!!! First from chau and ashr puts(china csi300) that I got in and out of for 300%. Then played the vix monday and tuesday with vxx calls. MU puts on their last report(tanked 30%). And currently shorting STX and SNDK, both trainwrecks with MU contagion. Shorted Yelp at $50 on the bs false buyout rumor but already sold my puts on that. STX should lay an rotten egg on their report coming up on jul 16-17.
I swear every time you make your prediction to single digits very soon, then ol scully comes in to drive it up just in spite of you lol So don't do it and just let it crash lol
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