$38 billion in bonds coming due 2020-2023
The commodity price downturn caused a wave of bankruptcies in 2015 and 2016, as companies attempted to adjust to “lower for longer” oil prices. However, there may yet be another round of restructuring, according to a Bloomberg Intelligence briefing today.
There is a significant amount of debt coming due in upcoming years, which will need to either be refinanced or paid down. The 20 largest independent E&P companies have a combined $23 billion in credit line commitments scheduled to expire in 2019, followed by about $38 billion in bond maturities from 2020 to 2023.
There has already been a large amount of refinancing activity in the past year. Refinancing peaked soon after the OPEC announcement last fall, as companies used the brighter outlook to secure lower rates. Activity picked up again in the past few weeks, as oil prices hit levels not seen in months. While a significant amount of debt has been refinanced, there is more that must be dealt with.
Strong financials are elusive at $50 oil
Companies refinancing debt need to demonstrate strong financials, but this is still elusive at $50 oil. When CapEx, production costs, G&A and interest expenses are all included, many companies are still producing cash losses, especially if hedging is not included.
This is particularly true for companies that plan to grow, as most are finding it difficult to both grow their production and keep free cash flow positive at today’s commodities prices.
Expected oil prices are not encouraging in this respect. The current NYMEX forward curve suggests that the price of oil will rise in the next few months, then fall as time goes on.
Unfortunately, the timing of this fall corresponds with companies’ debt coming due, meaning companies will be trying to refinance under difficult conditions.
Source: EnerCom Analytics
