Indebted

Publilius Syrus was not only a sharp witted writer, famous for his sententia or brief moral sayings, but he was also partial to a spot of mime. Indeed he was. So much so, Julius Caesar no less, asked him do the half-time show in the Games of 46BC. High praise. Syrus was also recently quoted by analysts at Bernstein, who had spent a few wet afternoons mulling the implications of the confetti-strewn boom of high yield debt issuance, in the Oil and Gas sector, over the past decade. ‘Debt is the slavery of the Free’ warned Syrus. The free in this case, concluded Bernstein, are the oil and gas operators currently wheezing under a colossal pile of increasingly pungent debt. A pile that Dealogic data puts at $2.4 trillion. This was the debt that fuelled the US shale phenomenon, developing new technologies and drilling efficiencies. The problem now, though, is that this debt is fast-maturing and the market is as dry and dusty as Death Valley. The banks have gone cold, spooked by more than $200bn of debt that has soured over the past five years; and the frayed prices bond investors are seemingly prepared to pay for those bonds which remain live on the tape. The banks too are in the cross-hairs from climate groups, who muscle in on public meetings and whistle and cat call from the back, forcing them to re-think their fossil fuel exposure. No bank lending is a bit of a problem for oil exploration and, whilst near term there is a sticky demand problem, no new bank lending, will likely mean lower long-term production. And for those that can strong arm a loan or short term credit facility out of their man in a suit, they will likely have to pay a higher coupon for the privilege. Higher coupons: lower profits. There are many forces that are currently at play in the geopolitically taut oil complex, but many of them are slowly suggesting that the supply crunch, if and when it comes, might well be acute.