TPT September 2015

Global Marketplace

barrel. The companies in the Bloomberg index spent $4.15 for every dollar earned on oil and gas sales in the first quarter, up from $2.25 a year earlier – this while pushing US oil production to its highest level in more than 30 years. According to Bloomberg data, almost $20 billion in bonds issued by the 62 companies are trading at distressed levels, with yields more than ten percentage points above US Treasuries. They have takers, but investors demand much higher rates to compensate for the risk that obligations will not be repaid. “Credit markets have played a big role in keeping the entire sector alive,” said Amrita Sen, chief oil analyst at Energy Aspects Ltd, a consulting firm in London. › Input from Standard & Poor’s buttresses the sense of an industry with money troubles. Oil and gas companies accounted for one-third of the 36 corporate-debt defaults worldwide this year, and missed interest payments are the leading cause of default, according to a 14 May report by S&P. By mid-year the rating firm had lowered the outlook or downgraded the credit of almost half of the 105 US exploration and production companies that it evaluates. US oil production began to fall in June and will continue to slide until early 2016 as shale drillers reduce spending in response to lower prices, the Energy Information Administration said. But those cuts will eventually lead to production declines, further shrinking revenue, said S&P’s Mr Watters. A tentative conclusion about hydraulic fracturing: it does taint water supplies, but not very often and not by very much In a response termed “pretty inconclusive” by Kristin Magaldi of Medical Daily, the US Environmental Protection Agency (EPA) will report that the hydraulic fracturing method of gas and oil extraction (“fracking”) has contaminated water supplies – but too seldom and too mildly to constitute a significant threat. Requested by Congress, the draft report, still under review by an EPA panel of scientists, is a synthesis of some 950 papers, technical reports and published studies. The analysis established that drinking water had been contaminated by five key components of the fracking process, but that this finding “was small compared to the number of hydraulically fractured wells.” The EPA emphasised that its intent was not to ascertain whether fracking is broadly hazardous to human or environmental health, but solely to gauge its effect on the nation’s water supply. To Ms Magaldi it was clear from preliminary reaction to the report that the researchers had sought and found a middle ground, as both sides to the heated debate over fracking are generally supportive of its conclusions. (“EPA Declares Fracking Has Polluted Water Supplies, But Not Frequently,” 5 June)

The overture reflects the views of Ben van Beurden, the CEO of Royal Dutch Shell, who on 22 May told the Guardian that, while “there will still be a need for hydrocarbons for years to come,” some way must be found to capture their emissions. At least as noteworthy as the European overture was the lemony response-in-advance across the Atlantic. No American firms joined their counterparts’ initiative. More than that, in the previous week ExxonMobil and Chevron, the two largest US oil companies, specifically ruled out joining any corporate alliance on climate change. In language at once puzzling and perfectly clear, Rex Tillerson, CEO and chairman of ExxonMobil, outlined the company’s position to shareholders in Dallas, Texas: “We’re not going to be disingenuous about it. We’re not going to fake it. We’re going to express a view that we have been very thoughtful about. We’re going to express solutions and policy ideas that we think have merit.” In a parting shot at Europe’s Big Six, he said, “Speaking out to be speaking out doesn’t seem particularly helpful to me.” The head of Chevron, John Watson, seemed to be doing just that, telling his company’s investors: “We think we can make our own statements and our statements speak for themselves.” Some issues facing the US shale industry – cash burn, liquidity, high credit costs – lie outside of the oil patch “The debt that fuelled the US shale boom now threatens to be its undoing.” Asjylyn Loder of BloombergBusiness was pointing out a largely overlooked aspect of the extraordinary rise in US oil production made possible by new shale drilling techniques. That is, the cash-flow problems of drillers who are devoting more revenue than ever to interest payments. And their burden is becoming heavier with the 43 per cent fall in oil prices in a year. Ms Loder reported that interest payments are eating up more than ten per cent of revenue for 27 of the 62 drillers in the Bloomberg Intelligence North America Independent Exploration and Production Index, up from a dozen a year before. Over the same period, even as revenue was shrinking driller debt rose 16 per cent – ballooning to $235 billion at the end of first-quarter 2015. “The question is, how long do they have that they can get away with this,” Bloomberg was told by Thomas Watters, an oil and gas credit analyst at Standard & Poor’s in New York. The companies with the lowest credit ratings “are in survival mode,” he said. (“The Shale Industry Could Be Swallowed By Its Own Debt,” 18 June) As noted by Ms Loder, shale drillers habitually spend money faster than they have made it, even when oil was at $100 a

Dorothy Fabian, Features Editor (USA)

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S eptember 2015