Posted on 12/11/2015 4:51:15 AM PST by thackney
Drained by a 17-month crude rout, some U.S. shale oil companies are merely hanging on for life as oil prices lurch further away from levels that allow them to profitably drill new wells and bring in enough cash to keep them in business.
The slump has created dozens of oil and gas "zombies," a term lawyers and restructuring advisers use to describe companies that have just enough money to pay interest on mountains of debt, but not enough to drill enough new wells to replace older ones that are drying out.
Though there is no single definition of a zombie, most investors and analysts consulted by Reuters say they tend to have exceptionally high debt loads and face the prospect of shrinking oil reserves.
About two dozen oil and gas companies whose debt Moody's rates toward the bottom of its junk bond scale broadly fit that description. Investors and analysts mentioned SandRidge Energy Inc., Comstock Resources, and Goodrich Petroleum Co as some of that group's more prominent members.
To stay alive, zombie companies have curbed costly drilling and are using revenue from existing production to pay interest and other expenses in a process some describe as "slow-motion liquidation."
Bankruptcies and defaults loom because the cutbacks in new drilling have been so deep that many companies risk getting caught in a vicious circle of shrinking oil reserves, falling revenue and declining access to credit, experts say.
As long as oil prices stay below the estimated break-even level of $50 a barrel, the zombie group is set to grow. In fact, so many oil companies are struggling that "zombies" are the topic of a keynote address at a big energy conference in Houston on Thursday.
(Excerpt) Read more at rigzone.com ...
The cure for low oil prices is low oil prices. The oversupply will be temporary.
Yep, only the timing is in question.
There will be profiteers what have the staying power showing up to scoop up the ones that have the better assets.
Think Chinese.
There have been more than $318 billion of deals have been announced over the past two years
http://www.wsj.com/articles/energy-company-assets-on-the-block-as-oils-plunge-bites-1449753310
During past oil market slumps, big energy companies went on merger-and-acquisition sprees to consolidate. This time around, they are turning to decidedly less sexy deals: selling pipelines, storage tanks and fuel terminals to raise money.
They are finding a growing band of investors willing to snap them up at premium prices, betting that midstream energy assets will be dependable cash cows.
There have been more than $318 billion of deals globally for this type of infrastructure announced over the past two years, nearly $100 billion more than the three previous years combined
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.