U.S. shale producers, refiners and pipeline companies are scrambling for cash and face likely restructuring as they struggle under heavy debt loads and a dual supply/demand shock in the worst crisis the oil industry has faced.
The forecast loan default rate for 2020 among energy companies is 18%, according to Fitch Ratings, while nearly 20% of all energy corporate bonds are trading below 70 cents on the dollar, indicating distress, according to data from MarketAxess.
Privately owned Glass Mountain LLC earlier this month sued troubled producer Chesapeake Energy for allegedly defaulting on an oil transportation contract, according to court documents. A number of these midstream operators borrowed heavily to finance pipeline systems, built to support producers developing new, costlier shale plays when oil prices were higher, but are no longer profitable.
PBF last month said it would sell hydrogen gas plants for $530 million to raise cash. That sale “solves some short-term problems for them,” said one person familiar with the transaction, but cautioned that this alone will not stabilize the company unless fuel demand begins to recover. The person declined to be identified because the matter was not public.Demand, however, is down by roughly 25% in the United States, and oversupply is expected to linger for months.
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