A new analysis by Fitch Ratings says that US oil companies distressed by the downturn in oil prices may be forced to auction off assets if the oil pricing remains anemic.
“As we continue to have low prices, then you continue to have low cash flows and your options narrow. And this is one of the things generally in your control. You can’t control your access to the market, but you can certainly put assets on the block,” according to Mark Sadeghian, senior director of corporates at Fitch Ratings.
Asset sales have so far been minimal in the US as most oil exploration and production companies have so chosen to stave off divesting their assets through cutbacks. This has mainly been achieved by slashing costs, idling rigs, laying off workers and cutting into spending plans. These savings can only help companies to a point as many carry heavy debt loads. According to Sadeghian assets sales are what is next for oil firms under pressure from lenders to pay down their debts.
Analysts in general now expect oil prices to remain low longer than originally anticipated. Some companies were able to raise money when access to capital eased briefly, earlier this year. That window of opportunity is closed now, and struggling firms are having to find other ways to survive with prices so low that some areas cannot turn a profit.
PetroQuest Energy Inc. in Lafayette, Louisiana offloaded the majority of its assets in the Woodford Shale and the Mississippian Lime in the Oklahoma area for $280 million last June. The funds were used to repay bank loans. Resolute Energy Corp. sold off its assets in the Powder River Basin in Wyoming and Montana to a private buyer for $55 million. The proceeds were used to pay off its revolver borrowings. EV Energy Partners sold a 21 percent stake in a natural gas midstream business in the Utica Shale in eastern Ohio to Williams Partners for $575 million in cash. The majority of the proceeds was also used to pay down outstanding borrowings on its revolver.
Fitch’s analysis indicates that more firms will need to strike deals to improve their liquidity and repay debts.