Shale Oil About To Go Bust And This Could Set Off A Debt CrisissteemCreated with Sketch.

in oil •  3 months ago 

The shale oil industry is a remarkable story. Unfortunately, it could be coming to an end.

One of the early trend setters, Chesapeake Energy, is likely to default on massive loans over the next year. The company has a balance sheet that is weighed down by more than $9B in debt.

Low oil prices are cause for the risk of default across the sector. Chesapeake is one of the largest in the industry and is on the brink of collapse.

In this challenging environment, aggravated by low commodity prices, Chesapeake Energy warned in early November that “If continued depressed prices persist, combined with the scheduled reductions in the leverage ratio covenant, our ability to comply with the leverage ratio covenant during the next 12 months will be adversely affected which raises substantial doubt about our ability to continue as a going concern.”

Companies are lowering their projections while cutting CAPEX for the next year. The goal is to generate free cash and manage the debt.

Chesapeake is seeing the stock hammered. It already reached a 25 year low after a 60 percent drop this month. The energy provider is down 72% year-to-date.

Across the board, earnings calls told of how the growth frenzy is shale is over. The days of huge margins in drilling are in the rear view mirror.

This does not bode well for an industry that is typically highly leveraged and forced into high CAPEX. The fact that it is so expensive means mounting costs coupled with falling revenues are near impossible to reverse.

Many have viewed the shale driller industry as one of the cards that could start to toppling of the massive debt that corporations took on. While it is rather small in comparison, it could send lenders scurrying, wanting to shore up their other positions. A hiccup in the economy could see other debt laden companies such as those in retail suffering.

Recessions are difficult to predict since it is impossible to guess what the "black swan" is. Even in a situation like this, we could say it is still gray. If the debt from the shale industry does turn bad, there is no guarantee it could set off a toppling. There is every chance it is contained.

Then again, it could be the straw that snaps the entire economy.

We will have to watch this closely.

If you found this article informative, please give an upvote and resteem.



Image from article linked.

Authors get paid when people like you upvote their post.
If you enjoyed what you read here, create your account today and start earning FREE STEEM!
Sort Order:  

dblog logo w white background.jpg
This post is upvoted by @dblog.supporter.
Visit now! This is a tribe for all bloggers on Steem blockchain.

Congratulations @taskmaster4450le! You have completed the following achievement on the Steem blockchain and have been rewarded with new badge(s) :

You published a post every day of the week

You can view your badges on your Steem Board and compare to others on the Steem Ranking
If you no longer want to receive notifications, reply to this comment with the word STOP

To support your work, I also upvoted your post!

Vote for @Steemitboard as a witness to get one more award and increased upvotes!

The shale oil sector has been circling the drain for quite a while. has covered the death spiral extensively. FWIW, they’re convinced that shale’s collapse will lead to supply disruptions causing a significant spike in petroleum prices.

Yes and higher prices at the pump are not something that I look forward to.

It is what the Saudis were reported waiting for. It is believed they decided to just wait out the shale industry knowing it would eventually collapse.