Weekly Puzzle #9: Debt and Distress
The Oil Price Collapse and the Debt Problem
One of the big stories of the last year has been the precipitous drop in oil prices, with no bottom in sight yet. That oil price drop is bad news for all oil companies, no matter where they fall in the production spectrum, and will translate into lower profitability in the future. The problem, though, is that many of these oil companies have been conditioned over the last decade to act like $100+ oil prices were here to stay and have not only invested on that basis, but borrowed as well. This article provides the big picture perspective on how levered the sector is and how lower oil prices are impacting it.
The debris is starting to pile up as oil prices stay down and debt payments start to come due. This article is one of many that points to this phenomenon and you have probably been reading about oil companies either entering Chapter 11 or thinking about doing so. This list will get longer and to help you find the next victims, here is the list of all oil companies listed globally with total debt outstanding and the numbers that you can scale the debt to to get measure of how indebted they are(Debt ratio(market), Debt ratio (book), Debt/EBITDA, Interest coverage ratio) and bond ratings, if available.