Shale oil drillers are on the brink of a debt crisis
The shale boom was fueled mostly by debt, not cash or equity.
Shale drillers are now using a record amount of their revenues to pay the interest for these loans, according to a report on Thursday by Bloomberg's Asjylyn Loder.
The report notes that since the oil crash about a year ago, revenues dwindled while borrowing has surged. Shale drillers' debt grew 16% year-over-year to $235 billion in the first quarter, Loder wrote.
There have already been some big debt defaults and even filings bankruptcies.
Quiksilver Resources filed for Chapter 11 bankruptcy protection in March after struggling to pay its $2.35 billion in debt.
There was also American Eagle Energy, which last month missed its first interest payment of nearly $10 million to bondholders, and also filed for Chapter 11 bankruptcy, giving it time to restructure the debt.
Loder also mentions Sabine Oil & Gas, which missed an interest payment to its creditors in April.
Energy company earnings and sales have plummeted in the past year. According to Factset, the sector is forecast to report the largest year-over-year decrease in revenues for the second quarter. Oil & Gas Exploration and Production companies are forecast to see their earnings tank 111%.
At this rate, with shrinking profits and growing interest payments, these three companies will probably not be the last to miss payments.
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