credit

For years, oil and gas companies struggled to win over investors, largely because of the energy sector’s notoriously volatile history — marked by boom-and-bust cycles and sometimes scary levels of indebtedness. You might think the pandemic and the subsequent upheaval in energy markets would only make matters worse, but the chaos actually forced energy companies to get their finances in better order and, in many cases, to either acquire other companies or be acquired themselves. Financial discipline and consolidation provided another benefit: sharply improved credit ratings, which have the knock-on effect of making companies even more attractive. In today’s RBN blog, we discuss the forces behind, and the importance of, the improved credit ratings that resulted from this massive wave of consolidation.

At times in the past, exploration and production companies (E&Ps) have been viewed as the riverboat gamblers of U.S. commerce. Given the right market signals, producers have been known to go “all in,” tapping credit markets in the equivalent of pawning grandma’s jewelry to win big by filling an inside straight. And, of course, they’ve sometimes paid the bitter price when commodity markets dealt the inevitable bad hand. So, the obvious question when prices and cash flows dipped earlier this year after producers raised capital investment by an average 40% is whether this is déjà vu all over again. Is the industry once again piling on too much debt? Today, we look at the debt levels of the 43 U.S. E&Ps we’ve been tracking.