Major US banks working on an oil shale rescue plan
Many oil shale companies in the United States have large credit obligations and there have been problems with repayment. The crisis caused by the pandemic and the difficult situation in the oil market have threatened the operations of American companies. In order to avoid default, the largest US banks decided to take the assets of oil shale producers under their management.
According to the information, such famous financial institutions as Bank of America, JPMorgan and others, will soon manage the affairs of oil and gas companies that are unable to repay their loans. According to bank managers, such a decision will reduce the risks of economic collapse. Such measures have not been introduced in the States since the 1980s.
According to analysts, the demand for oil in the world decreased by 30%, which resulted in its cost reduction at 60%. This led to a sharp decline in the U.S. oil shale industry, and some companies were on the verge of bankruptcy. According to the estimates of the state financial sector, producers of this raw material are in debt of about $200 billion on loans, which are secured only by oil and gas reserves.
The drop in quotations on the stock exchanges led to inability of the oil shale segment participants to repay their liabilities to creditors, a number of them have already filed applications to start bankruptcy proceedings. Among the latter was a large specialized company Whiting Petroleum. Other producers are trying to get out of the difficult situation by hiring financial consultants, getting rid of assets and reducing the staff.
Decrease in oil prices was a serious test for the oil shale industry. If before this segment had been developing and demand in it was supported as much as possible, now the prospect of oil shale production is no longer so profitable. That is why the financing of the segment has practically stopped. The companies were able to operate thanks to a loan from large banks, which used fossil reserves as collateral, but the oil collapse made some adjustments. The oil shale producers could not fully repay their credit obligations, and banks were looking for options to repay their funds.
At the moment, financial institutions need to preserve the assets of the bankrupt, otherwise they will have to sell them now, when the price on them is negligible. However, the organization of management, analysis of the companies will take a long time, and whether the companies will be able to survive is still unknown. If oil prices remain at the same level, the oil shale industry will collapse, which will lead to losses for the banking segment as well. A similar situation was observed in 2008, when the crisis hit the mortgage market in the USA.
Experts hope that assets of oil shale companies will be restructured, but the industry development is still in question.