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Shale Revolution: Investors Suffer $150 Billion Oil Price Hit

Eric Platt, Ed Crooks and Laura Noonan, Financial Times

Investors have suffered losses of at least $150bn in the value of oil and gas company bonds, as the slump in crude prices since the summer of 2014 has fuelled fears of a wave of defaults in the US and emerging markets.

The 300 largest global oil and gas companies have also seen $2.3tn sliced from their stock market value over the same period, a 39 per cent slide since oil began its decline, an analysis by the Financial Times has found.

The losses show how intense the financial strain on oil producers from falling crude prices remains, in spite of the partial recovery in prices since January. Oil is still down about 65 per cent from its June 2014 peak.

Banks have also been increasing their provisions for energy-related losses on their lending. With several banks having loans to the industry equivalent to more than 40 per cent of their equity, lenders have tightened loan agreements with oil producers, and capital markets remain closed to the lowest rated groups.

More than $150bn has been shaved off the value of 1,278 actively traded bonds denominated in dollars, euros, sterling and yen since Brent crude hit almost $116 a barrel in June 2014.

Borrowing by oil and gas companies has soared over the past decade. Their total debt, including loans, almost tripled from $1.1tn in 2006 to $3tn in 2014, according to the Bank for International Settlements.

The borrowers with the steepest increase in debts relative to their assets included US independent production companies caught up in the country’s shale boom, and national oil companies from emerging economies including Pemex of Mexico, Petrobras of Brazil and CNPC of China.

Cheaper oil can act as a stimulus to global growth, by redistributing real incomes from producing countries to consumers, who are often seen as more likely to spend the gains they make.

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