Oil companies looking to borrow are expected to see their chances of borrowing decrease by around 16%, according to Jeff Nichols (leader of the firms energy finance practice group) this is because borrowers are seeing their reserves remain flat, and are trying to be more realistic with their expectations. With oil companies not being able to borrow, and some not being able to remain solvent with the oil price downturn, we are going to see some more oil companies file for bankruptcy. Already more than 100 energy companies have filed for bankruptcy, and we are going to see more go bankrupt if lenders cut their debt line too deep.
People are expecting many oil drillers to be able to negotiate a deal with their lenders, or will be able to sell of their assets in order to not file for bankruptcy, but 13% believe they will not have the funding to keep their business on the right path, which will force them to shut down.
With these bankruptcy's we're going to see a lot of jobs lost in the oil and gas industry, because these businesses will be shutting down. Since businesses will be shutting down we will most likely see the unemployment rate increase in this industry. My two questions for this article are oil and gas companies unable to borrow because interest rates are so low? And does OPEC's increase in production have any significance on these oil companies closing?
Link: http://www.msn.com/en-us/money/inside-the-ticker/oil-and-gas-drillers-have-a-test-coming-up-that-will-decide-bankruptcy-for-some/ar-BBwYP5i
This is interesting, especially since oil prices are up around $50 a barrel of crude oil. OPEC is a major issue for the major oil companies, since OPEC rarely is able to agree upon anything. As of late, There was recently a discovery of what could be over 6 billion gallons of oil off the coast of Alaska. This could greatly increase the domestic and global supply of oil, dropping prices; Additionally, this would lead to drop in production costs for oil dependent firms globally as supply goes up.
ReplyDeleteOil is a finite commodity. It will eventually run out. Playing devil's advocate, is it possible that alternative energy sources are encouraging the bankruptcy of oil companies. In my hometown windmills and solar panel houses are being erected and it makes you think how long can the oil business contend as a viable source of energy. Even cars are being transformed to be fuel efficient. The question for oil companies now is when to switch over before it is too late.
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