Debt is catching up to oil companies and the creditors who loaned the money: In 2016 thus far, the number of U.S. oil companies filing for bankruptcy is twice that of last year’s totals.
The credit-rating agency Moody Investor Services released a report that looks into lending to 15 exploration and production companies that filed for bankruptcy protection in 2015. The report shows that in past decades, creditors recovered an average of 59 percent of what was loaned to oil and gas companies, compared to today’s average of just 21 percent.
With the oil and gas markets in a slump for two years and counting, companies have been struggling to pay even the interest on their debts. Moody’s stated that in 2015, companies negotiated distressed-debt exchanges only to turn around to file bankruptcy shortly thereafter. “Although the worst is likely behind us, the E&P sector still remains stressed,” states the Report.
With defaults at their highest since 2009, it should be clear to investors (and would-be investors) why TAG Oil works hard to remain free of debt. In a low oil-price environment, we want to stay fiscally strong and stable. And to remain focused on what matters most—shareholder value—whether by way of acquisitions, reserve and production growth, or lower production costs.