HOUSTON – A series of credit ratings downgrades and new bond offerings this year have piled on $30 billion to the mountain of risky debt tied to oil companies, according to Fitch Ratings.
The energy sector’s high-yield bonds – so-called “junk bonds” considered at risk of default – have climbed to $247 billion in the last two months, the largest share of any industry with 17.5 percent of high-yield bond market.
That percentage is comparable to the telecommunication sector’s share of the market in June 2002, around the time of WorldCom’s bankruptcy and a widespread industry crisis, according to Fitch.
In the last five years, U.S. oil producers have taken out debt to drill into previously untapped shale rock formations from Texas to North Dakota. Crude priced above $100 a barrel kept these companies well ahead of debt payments and allowed them to keep drilling.
But Goldman Sachs, Fitch and others have said sunken oil prices, which have fallen to around $50 a barrel, could spur some U.S. oil companies to default on debt payments – or sell themselves or certain assets.
New York credit ratings agency Fitch said it oil prices may rise later this year on anticipated declines in U.S. crude stockpiles.
But energy default rates, it said, will likely “push above the historic average because the shale technology revolution” because of the high amounts of debt oil companies have collected.
U.S. oil producers Quicksilver Resources, American Eagle Energy, Saratoga Resources and BPZ Resources have all missed interest payments this year.
Last week, Houston oil field service firm Cal Dive International filed for Chapter 11 bankruptcy. Moody’s Investors Service downgraded Swiss rig contractor Transocean’s $9.1 billion in debt last month.
Fitch currently gives $53.8 billion of the high-yield energy debt a “CCC” rating, a classification that indicates vulnerability to default and a dependence on economic factors.