‘There will be some blood’: Will Canada’s oilpatch be able to withstand the price onslaught? – by Yadullah Hussain (National Post – December 19, 2014)
The National Post is Canada’s second largest national paper.
There will be bloodletting and pain as the impact of low oil prices reverberates through the Canadian oilpatch, but the industry is entering the downturn from a position of strength, according to analysts.
“There will be some blood on the streets, but if companies can keep their cash to debt ratios down below three times or in some cases four times at least they are not facing a bankruptcy-type position,” said Jeremy Kaliel, executive director, institutional equity research at CIBC World Markets Inc.
The dramatic decline in oil prices has caught the industry off guard, leaving companies scrambling to cut capital expenditures and dividends and redrawing their 2015 plans.
The U.S. oil and gas industry is already feeling the heat as much of the shale boom was fuelled by a diet of cheap debt that looked affordable at US$100 per barrel. With U.S. crude now edging towards US$55, investors have fled.
“Some of these companies have up to 75% of their market cap wiped out,” said Rick Chamberlain, managing director at Houston-based Berkeley Research Group. “The ones that leveraged didn’t make the right financial decisions.” Read the rest of this entry »