Sinking Oil Prices Force Record Defaults At Energy Companies, Others

Oil Prices and Company defaults

Corporate defaults on a global scale have already passed 100 in 2015, making it the worst year on record since the 2008 financial crisis, according to a study by Standard & Poor’s Rating Service.

This is the first time triple-digital default numbers have been hit since 2009 and they are more than double what was reported for all of 2014.

As expected the 2015 global default list consists largely of energy companies who were not able to sustain their debt obligations as the price per barrell fell below $50 and then continued to slide downwards.

Almost one-third of this year’s defaults were companies in the oil, gas or energy business, according to S&P.

“It makes perfect sense. A lot of debt plus lower prices equals financial stress. Everyone thought oil would stay over $100 a barrel forever — and then it didn’t,” said Nicholas Colas, chief market strategist at ConvergEx.

Most energy defaults originated with US companies which were hit hard by the low cost of oil.

Since the end of August, S&P said the following oil and gas companies have defaulted: SAExploration Holdings, Halcon Resources, Goodrich Petroleum, SandRidge Energy, EXCO Resources, and Vantage Drilling.

A super-strong U.S. dollar has also made it more difficult for foreign companies to pay back debt they took on that was priced in dollars. That has led to an increase in defaults outside of the oil industry.

With OPEC continuing to over-produce in the hopes of maintaining its market share, while simultaneously driving down the price to levels that U.S. producers can’t compete with, there is a very good chance that more defaults will soon be reported.