Rebounding Oil not Enough to Save Energy Companies

Debt

 

Oil is making spectacular gains in the markets as of late, but these gains seem to be too-little-too-late for some companies.

 

In the past year 130 North American oil and gas producers have filed for bankruptcy, owing more than $11 Billion.

 

It’s even bad news for the companies that are still afloat.  It is being reported that almost half of the companies that are still in business are using their profits to pay off the interest on their enormous debts.

 

“There’s not a lot of this debt that comes due in 2016. But in 2017—that’s when the rubber will really hit the road. Now a lot of these companies are already looking to bankruptcy because people know that the bond position is untenable,” said Dan Dicker, President of MercBloc.

 

The debt crisis for these companies seems to see no end.  As debt keeps rising for these companies, so does they need for higher oil prices, but higher oil prices rarely turns into higher profits (just looks at the gas industry in the early 2000s).

 

The catch-22 seems inevitable: Energy companies need higher oil prices to make profits, but higher oil prices decrease consumer use, which actually decrease profits.

 

Oil companies seem to be safe for now, but the looming 2017 debt maturation looms heavy.

 

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