Oil bust

excerpt from here

The number of drilling rigs working in the Eagle Ford dropped by half in the past year, from 203 to 93. Across the country, more than 1,000 drilling rigs have been stacked.

McMullen County pumped 2.7 million barrels of oil in June, down from 3.6 million barrels the same month last year.

DeWitt County’s total property value, much of it based on oil and gas wealth, fell by $1.15 billion this year, down 16 percent.

The Eagle Ford’s biggest oil producers have issued a series of gloomy announcements. Houston-based EOG Resources made just $5.3 million in the second quarter, down 99 percent from the same period last year. ConocoPhillips last week said it would lay off 10 percent of its workforce. Marathon Oil Corp. posted a $386 million net income loss for the second quarter.

Dennis Elam, associate professor of accounting at Texas A&M University-San Antonio, said the smaller, more overleveraged shale companies are drilling wells just to pay debt. “They’re chasing the water right down the drain,” he said.

South Texans track other economic measures — traffic jams on rural roads or the advertised prices for hotel rooms in the region, now as low as $40.

A few years ago, DeWitt County Sheriff Jode Zavesky lost seven employees in three weeks to the oil field. The police academy in Victoria had to cancel classes because everyone was going to work in the oil field instead. “We’ve got great benefits,” Zavesky said. “But a young guy can’t buy diapers on great health insurance.”

Now, Zavesky has hired some of his old deputies back and said the police academy has seen a bump in enrollment.

He’s also seen an uptick in oil field crime — the theft of tools from work sites and people stripping copper from the drilling rigs parked along the side of the road.

Joy Tipton, who owns the Little White House Country Store in Fowlerton, judges the oil market by what time she starts to hear traffic rumbling down Texas 97. The noise used to start around 5 a.m., with trucks hauling sand, water and oil flowing past her place like a mechanical river. In August, it stayed quiet until around 9 a.m.

Blink-and-miss-it Fowlerton, with 62 residents the last time the Census Bureau bothered to count in 2000, hugs the La Salle-McMullen county lines. In recent months, a small restaurant and oil field supply company closed their doors.

That left Tipton as the only one to give unsolicited advice to oil field workers who stop to buy a soft drink or after-work beer: “Don’t speed. Don’t eat your dessert before you eat that sandwich. There’s a police officer down there.”

Comments

[rjs]

they're all going down...more than half of the independent drillers reported operating losses in the 2nd quarter, when oil was averaging $60 a barrel...for the past month and a half, it's been $45...when their economically recoverable reserves are revalued by the banks on October 1st, their lines of credit will get cut off...and since their cash flow wont pay the interest on new bonds, most will be bankrupt by Thanksgiving...

[rjs]

looks like we'll have to wait a while for the wash-out of the oil & gas drillers i was predicting here...Gillian Tett at the FT reported that
"the covenants on 72 out of the 74 loans to the oil and gas sector had recently been modified,”. "banks now realise that most of its energy sector borrowers are struggling — so it is quietly relaxing the borrowing conditions, to avoid the embarrassment of seeing loans it has made go into default."

http://www.ft.com/intl/cms/s/0/c328d9f6-70d2-11e5-9b9e-690fdae72044.html#axzz3pmbEElZf

maybe they'll take the banks down with them...

[Jodi Dean]

can you paste the text in? it's behind a firewall.

[rjs]

sorry...i have 4 registered accounts with different emails that gives me a large batch of free articles each month, and when that fails i use google..

The tangle of loose lending to tight oil
Gillian Tett
Big US lenders have admitted they are setting money aside to cover losses on fossil fuel loans

A few weeks ago, a big hedge fund manager in New York asked a major Wall Street bank what was happening to energy sector loans. The answer was sobering.
“They said that the covenants on 72 out of the 74 loans to the oil and gas sector had recently been modified,” this investor reports. Or to put this into plain English, this bank now realises that most of its energy sector borrowers are struggling — so it is quietly relaxing the borrowing conditions, to avoid the embarrassment of seeing loans it has made go into default.

It is impossible to tell precisely how typical this is; bankers are pathologically secretive about loan modifications. But judging from the tone of US quarterly bank earning calls this week, I suspect the pattern is widespread — and points to an issue that investors need to watch closely this coming winter.

Over the past year, the oil price has slid by more than 40 per cent, to trade below $50 a barrel. At that level many energy companies are almost unviable — particularly those small and midsized US explorers and producers that have ridden the shale boom.

Yet this slump has caused remarkably few ripples in the wider financial world. True, the price of most energy sector bonds has tumbled, with many junk bonds now trading below par. But there have been few outright bond defaults and banks themselves have not been calling loans in; instead, it seems most have been “modifying” those covenants — and praying for an oil price rebound.

But this could soon change. One reason is that bankers are starting to accept that oil prices below $50 a barrel might be the new norm.

Earlier this month, for example, the International Energy Agency warned that the current pattern of excess supply and weak demand will continue throughout 2016. And banks such as Goldman Sachs are now telling clients to brace for a world where prices could even touch $20 a barrel.

A second factor is the stance of the authorities. Until quite recently, regulators in the US and Europe seemed willing to let banks engage in forbearance. But now they are keen to show they have learnt the right lessons from last decade’s crisis — by getting ahead of the curve and forcing banks to be tough.

Thus the Bank of England recently warned that it plans to scrutinise bank exposures to the commodities and energy world. And American regulators recently summoned the large banks to a special, secretive summit in Houston, where they urged the banks to get more “realistic” (that is, less forgiving) with their energy sector loans and make provisions, if not call in loans.

This tactic has sparked irritation among some bankers, who say they are reluctant to run from clients. And behind the scenes there are some bitter tussles under way between bankers and regulators. One particularly thorny question is how financiers should evaluate their clients’ so-called “reserve bases” — the untapped reserves of fossil fuels against which banks extend loans.

This week most of the large American banks admitted in their latest quarterly earning calls that they are setting money aside to cover more losses on their fossil fuel loans — while also insisting that they can cope.

For example Jamie Dimon, chief executive of JPMorgan, revealed that his bank is now conducting stress tests to see how its loan book would fare if oil fell to $30 a barrel. But he argued that even that scenario would only require another “$500m or $750m in reserves, which is just not something we worry a lot about”.

Perhaps he is right. Certainly the bigger banks seem well cushioned. But even if the largest of them such as JPMorgan can swallow the hit, there could still be some pockets of localised pain; after all, total global energy sector debt now tops $2.5tn, according to the Bank for International Settlements.

And what is also crystal clear is that banks are unlikely to provide much more credit to the energy sector again soon.

That does not mean that the Wall Street funding spigot will close all the way: large non-bank lenders are now quietly preparing to jump into this void, to provide funds to cash-starved energy groups instead.

But any new non-bank funding will be costly for borrowers. Indeed, some private equity players expect this to be their fattest profit source this winter. Call it, if you like, the genius of capitalism; or a sign of Wall Street’s predatory instincts.

Either way, the funding weather is changing for the energy world; unless there is another big — unexpected — oil price swing.

[rjs]

not that we aint seeing some bankruptcies anyhow...this article mentions nearly two dozen:

http://www.thedeal.com/content/restructuring/bankruptcy-becomes-a-way-of-life-for-oil-and-gas-companies.php