Debt burden of shale drillers puts 400,000 oil barrels a day at risk

OilPumpTotal debt for many oil and gas companies has risen to 40 percent of their enterprise value

By Bloomberg News – August 18, 2015

As much as 400,000 barrels a day of oil production is at risk as U.S. shale companies such as Samson Resources Co. run out of money and are forced to slow drilling.

Total debt for half of the companies in a Bloomberg index of more than 60 producers has risen to a level that represents 40 percent of their enterprise value.

It’s a sign of distress that shows equity values falling in the face of oil’s crash, said Rob Thummel, a managing director and portfolio manager at Tortoise Capital Advisors LLC who helps manage $15.6 billion.

The companies facing high debt loads — which include Chesapeake Energy Corp. and Colorado’s third-largest operator, Encana Corp. — produced 1.1 million barrels of oil a day in the second quarter of this year, according to data compiled by Bloomberg.

If more companies file for bankruptcy, as Samson did Wednesday, or embrace the kinds of draconian cuts needed to survive, output could fall by 200,000 to 400,000 barrels, Thummel said.

That’s about the amount of oil from Oklahoma, the sixth-largest producing state, which pumped 356,000 barrels a day in June, government data show.

“We are going to see a major response because these financially challenged companies won’t be able to produce as much as they did in the past,” he said.

Continue reading story at The Denver Post

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