WITHOUT RISK

When are defaults on oil company debt bullish for oil prices and negative for banks?
Energy prices can stay flat for a while, as previous episodes prove. But the pieces

are starting to come together. The Russia-Saudi cap even at current production levels is just one example. There is evidence of some smart money picking up strategic companies. At some point drilling for oil on Wall Street favors drilling hole in the ground. And there are others. bloomberg.com/news/articles/2016-02-18/shale-faces-march-madness-as-1-2-billion-in-interest-comes-due

Despite low energy prices and all the turmoil demand for secondary offerings are strong, according to the WSJ.

Oil prices remain at depressed levels, but investors in new shares issued by energy companies are acting like they have detected a bottom. North American oil-and-gas producers have sold more than $5 billion of new shares so far this year, including three deals on Wednesday. 

As nearly everyone knows, shale production has been one of the huge reasons for the oil glut in the U.S. Observers have been waiting for months for the real declines in production to start there. According to a story today on blogs.platts.com, the official cutback in the Bakkan area has arrived. The Bakkan reserves are In North Dakota, an area that enjoyed a huge boom from the shale industry until the bottom started falls out on prices.

The U.S. shale industry must come up with $1.2 billion in interest payments by the end of March as $30-a-barrel oil makes it harder for companies to scrape up the cash needed to stay current on their debts.

Almost half of the interest is owed by companies with junk-rated credit, according to data compiled by Bloomberg on 61 companies in the Bloomberg Intelligence index of North American independent oil and gas producers. Energy XXI Ltd. said in a filing Tuesday that it missed an $8.8 million interest payment. The following day, SandRidge Energy Inc. announced that it didn’t make a $21.7 million interest payment. 

"You’ve seen two of these happen in two days, and I wouldn’t be surprised to see more in the next month as these payments come due," said Jason Wangler. 

Wangler is an energy analyst at a securities firm in Houston.

Just how all this will play out remains to be seen. But without  risk there is really no opportunity.