U.S. shale producers, refiners and pipeline companies are scrambling for cash and face likely restructuring as they struggle under heavy debt loads and a dual supply/demand shock in the worst crisis the oil industry has faced.
Approximately half of the top 60 independent U.S. oil producers will likely need to review options for securing more liquidity, according to energy lawyers at Haynes and Boone. One midstream company, Salt Creek Midstream, which operates in the Delaware basin in Texas, had already hired Jefferies Financial Group and law firm Kirkland & Ellis for debt advice before the week's events, according to three sources aware of the matter, speaking on condition of anonymity to discuss non-public information.
The forecast loan default rate for 2020 among energy companies is 18per cent, according to Fitch Ratings, while nearly 20per cent of all energy corporate bonds are trading below 70 cents on the dollar, indicating distress, according to data from MarketAxess. Midstream companies are also threatened by a slow fall in production, as wells are being plugged due to poor market conditions. Based on company estimates, at least 600,000 barrels per day of U.S. production cuts have been announced, and that cuts off transportation fees earned by pipeline companies.