Oil Drillers Set To Go Bust In Second Quarter Of The Year
According to reports by Conway Mackenzie Inc., the biggest restructuring firm in the US, oil drillers and energy explorers are unable to profitably continue with operations due to the plunging oil prices.
Following the 57% decline of the American crude, West Texas Intermediate, all signs pointed to the impending closure of drilling and exploration companies.
So far, oil companies across the globe have laid off thousands of employees, annulled projects worth billions of dollars, and have had to cancel many of their exploration plans in the face of a historically long oil glut. Others who will soon start to feel the pinch include service providers at oilfields because explorers are cutting back on the need for these services.
According to John T. Young of Conway Mackenzie Inc., “The second quarter is set to be devastating for the oil service companies. There are definitely companies that are going to die.”
Young said that oilfield service providers would be the most affected because oil companies are taking too long before paying their bills while at the same time demanding price reductions by up to 30 percent, a scenario that is creating a cash flow gap for the service providers.
Young, an experienced restructurer is urging oil drillers to be on the lookout to ensure that the oil explorers they work for have solid cash flows secured in instruments such as collars. Whether a company has its natural gas output for 2015 hedged is a strong indicator of their cash flow standing.
“It is really important to keep an eye on this stuff. You’ve got to start filing liens if you see a company is starting to die.” A lien forces a delinquent debtor to make good his promise to pay a bill owed.
US drillers including BHP Billiton Ltd. and Antero Resources (AR) Corp were among the first among a bunch of companies that have stopped drilling and exploration projects in an effort to curb out of control expenses against the background of falling oil prices.
The largest overseas investor of U.S. crude, BHP, announced that it would slash the number of rigs by as much as 40%. AR is set to make a similar amount of reductions.
Schlumberger Ltd. (SLB), the largest oilfield service provider in the world cut as many as 9,000 jobs as it sought to lower the costs of operation.
James Williams, president of WTRG Economics, an energy consulting firm said, “All major oil players are cutting down on their rigs. We’re falling off the cliff and we’re only halfway down.”
What is the impact of low oil prices for investors?
As an investor, it is important not to overreact to the current decline in oil prices. No one can tell how long the prices will stay this low and the financial markets could certainly be effected by other factors. Avoid constantly making trades in reaction to the ever-changing economic news. This will ensure that you lose as little in commissions and fees as possible, thereby boosting your profits when you do make a necessary trade move.
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