Shale faces March madness as $1.2 billion in interest comes due

The U.S. shale industry must come up with $1.2 billion in interest payments by the end of March as $30/bbl oil makes it harder for companies to scrape up the cash needed to stay current on their debts.

Almost half of the interest is owed by companies with junk-rated credit, according to data compiled by Bloomberg on 61 companies in the Bloomberg Intelligence index of North American independent oil and gas producers. Energy XXI Ltd. said in a filing Tuesday that it missed an $8.8 million interest payment. The following day, SandRidge Energy Inc. announced that didn’t make a $21.7 million interest payment.

“You’ve seen two of these happen in two days, and I wouldn’t be surprised to see more in the next month as these payments come due,” said Jason Wangler, an energy analyst at Wunderlich Securities Inc. in Houston.

Energy XXI may not be able to meet its commitments in the next 12 months, raising “substantial doubt regarding the Company’s ability to continue as a going concern,” according to a company filing with the U.S. Securities and Exchange Commission. A company representative didn’t return a phone call and email seeking comment.

SandRidge Payment

SandRidge “has sufficient liquidity to make these interest payments, but has elected to use the 30-day grace period in connection with its ongoing discussions with stakeholders,” the company said in a statement released Wednesday.

“Today’s actions will preserve liquidity and flexibility as we continue to engage in constructive dialogue with our stakeholders,” James Bennett, SandRidge president and CEO, said in the statement.

Oil has tumbled more than 70% since a June 2014 peak of $107/bbl. While prices were high, many drillers spent more money than they earned, plugging the shortfall with debt.

That debt has become increasingly burdensome as prices collapsed. Since the start of 2015, 48 North American oil and gas producers have declared bankruptcy, owing more than $17 billion, according to law firm Haynes & Boone. Deloitte LLP said this week that bankruptcies in the oil and gas industry could surpass levels seen in the Great Recession.

$9.8 Billion

The industry is facing $9.8 billion in interest payments through the end of this year, according to data compiled by Bloomberg.

SandRidge, which drew down its full $500 million credit line on Jan. 22 and hired legal and financial advisers, has another payment of about $28 million due March 15, the data show. Chaparral Energy Inc., which likewise tapped its entire credit line and hired advisers this month, owes $17 million next month. A representative for Chaparral did not return a phone call and email seeking comment.

“If you can’t make it through the year at current strip prices, then why pay the coupon?” said Subash Chandra, a managing director with Guggenheim Securities in New York. “If you can’t make it out of this year, and asset sales aren’t going anywhere and no one wants your equity, then there just aren’t that many avenues to fix the problem.”