Why Shale Oil’s Safety Net Is About to Expire.

Halcon Resources Corp. almost ran into trouble with its banks in June 2013. And again in March 2014. And in February 2015.

Each time, the shale driller came close to violating debt limits set by its lenders, endangering a credit line that provided as much as $1.05 billion in much-needed cash. Each time, Halcon’s banks, led by JPMorgan Chase & Co. and Wells Fargo & Co., loosened their restrictions, allowing Halcon to keep borrowing.

That kind of patience may be coming to an end. Bank regulators have issued warnings on the risks involved in lending to U.S. drillers, threatening a cash crunch in an industry that’s more dependent than ever on other people’s money. Wall Street has been one of the biggest allies of the shale revolution, bankrolling thousands of wells from Texas to North Dakota. The question is how that will change with oil prices down by half since last year to $50.36 a barrel.

“Lenders in general are increasing pressure on oil companies either to raise more equity or do some sort of transaction to pay down their credit lines and free up extra cash,” said Jimmy Vallee, a partner in the energy mergers and acquisitions practice at law firm Paul Hastings LLP in Houston.

Next Re-evaluation

Shale drillers raising cash chart

Banks are already preparing for the next re-evaluation of oil and gas credit lines, reviews which typically take place twice a year in April and October. The loans are based on the value of drillers’ producing reserves, which has shrunk as oil prices fell. Many companies are also losing protection as hedges that locked in prices as high as $90 a barrel begin to expire.

“There’s another redetermination cycle in the fall,” Marianne Lake, chief financial officer at JPMorgan in New York, said July 14 during a conference call to discuss the company’s earnings. “And I’m not going to say likely but it’s possible we’ll be selectively downgrading some clients.”

Banks so far have been willing to keep the money flowing because drillers that come close to maxing out their credit lines have paid them off by tapping public markets. U.S. producers have raised about $44 billion through bonds and share sales in the first half of this year, the most since 2007, according to data compiled by Bloomberg and UBS Group AG.

Debt Appetite

Now the appetite for that debt is dwindling. Bonds have become more expensive and are laden with more onerous terms, including liens against drillers’ oil and gas assets. The average coupon has increased to 6.84 percent in 2015 from 6.36 percent in 2014, according to data compiled by Bloomberg.

Some of the bonds issued this year are already trading at levels indicating financial distress, including $1.25 billion issued last month by SandRidge Energy Inc. More than $22 billion out of the $235 billion in debt owed by the 62 companies in the Bloomberg North America Independent Explorers and Producers index is trading at distressed levels. Their yields are more than 10 percentage points above U.S. Treasuries, as investors demand higher rates to compensate for the risk they won’t be repaid.

Halcon swapped some of its debt for shares this year to help reduce borrowing costs, leaving some bondholders with stock that was worth less than they were owed. The company also issued a $700 million second-lien bond in May.

Banks are already preparing for the next reevaluation of oil and gas credit lines, reviews which typically take place twice a year in April and October. Photographer: Eddie Seal/Bloomberg

Banks are already preparing for the next reevaluation of oil and gas credit lines, reviews which typically take place twice a year in April and October. Photographer: Eddie Seal/Bloomberg

 

Default Leftovers

In the event of a Halcon default, Standard & Poor’s estimates that unsecured bondholders would get, at most, 10 percent of the almost $2.6 billion they are owed. Banks have first dibs on most of the company’s assets. Other investors will get next to nothing. Even so, banks aren’t eager to take over drilling the oilfields themselves.

“They certainly don’t want to push anybody over the edge because the last thing the banks want to do is to try to run a company,” said Robert Gray, a partner at law firm Mayer Brown LLP who has worked on company restructuring.

Banks are under pressure from regulators to more frequently review their energy lending and cut back credit lines as the value of collateral drops. In April, the U.S. Office of the Comptroller of the Currency flagged oil and gas loans as one of the lending industry’s biggest emerging risks.

Wells Fargo saw a $416 million increase in past-due loans in the second quarter, most of them energy-related, the company said in a July 14 presentation. The impact is “relatively immaterial,” CFO John Shrewsberry said.

JPMorgan set aside $140 million to cover potential losses on oil and gas loans, Lake, the CFO, said during the bank’s conference call.

“For the weaker companies, it could be very, very painful,” Vallee, the partner at Paul Hastings, said of the potential downgrades. “Some of them are essentially running on fumes.”

Bloomber’s link to: Wall Street Lenders Growing Impatient With U.S. Shale Revolution by Asjylyn Loder, Bradley Olson and Dawn Kopecki

The Confiscation of Bank Deposits & the Derivatives Debt.

Russian Roulette: Taxpayers could be on the hook for Trillions in Oil Derivatives

The sudden dramatic collapse in the price of oil appears to be an act of geopolitical warfare against Russia.

The result could be trillions of dollars in oil derivative losses; and depositors and taxpayers could be liable, following repeal of key portions of the Dodd-Frank Act signed into law on December 16th.

On December 11th, Senator Elizabeth Warren charged Citigroup with “holding government funding hostage to ram through its government bailout provision.” At issue was a section in the omnibus budget bill repealing the Lincoln Amendment to the Dodd-Frank Act, which protected depositor funds by requiring the largest banks to push out a portion of their derivatives business into non-FDIC-insured subsidiaries.

Continue reading report here: Russian Roulette with Taxpayers Money

Watch the following interview explaining the details about The Confiscation of Bank Deposits & the Derivatives Debt

Money Market Funds: New Exit Suspensions & Exit Fees!

SEC Approves Tighter Money-Fund Rules
Plan Allows Funds to Temporarily Block Withdrawals in Times of Stress

SECMoney market funds new rules have been passed by the Securities and Exchange Commission;

Money market funds can impose a liquidity fee on redemptions if the fund’s weekly liquidity falls below the level required by regulations.

Redemptions may also be suspended temporarily. The SEC calls them redemption “gates.”

Institutional prime money market funds are required to float the net asset value, or NAV, rather than keeping share prices fixed at $1.

See link: SEC Adopts Money Market Fund Rules

Note: An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.

Government of Ukraine Collapses

imageThe Ukrainian government has resigned.
The prime minister Yatsenyuk, or “Yat” as affectionately called by Victoria Nuland who put Yat into office, resigned along with the entire Cabinet.

The parliament refused to vote the harsh conditions demanded by the IMF. I am not sure what this means. Perhaps it is just a tactic to force the parliament to do as the IMF says. Or perhaps Yat, Washington’s stooge, has realized that IMF or no IMF, Ukraine’s economy is imploding and wants to get out of the blame.

The point for now is that I checked the BBC, the New York Times, and CNN and there is not one word about the collapse of the government of Ukraine.

I did notice that the BBC, now a reliable element of Washington’s Ministry of Propaganda, reported, as if it were true, State Department spokeswoman Marie Harf’s claim that the Russian military is shelling Ukrainian forces. When Harf tried this out today on a roomful of journalists, they laughed her out of the room. Evidence, evidence! they demanded. Why, Harf was asked, do you think something is made true by you saying it!?

So, as usual, real news is missing from the Western press, but fake news is reported.

Professor Michael Chossudovsky has provided an account of the collapse of the Ukrainian government on Global Research. http://www.globalresearch.ca/collapse-of-ukraine-government-prime-minister-yatsenyuk-resigns-amidst-pressures-exerted-by-the-imf/5393168

Paul Craig Roberts Institute for Political Economy

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Austria starts the Default Once Again?

INTERVIEW MIT JUSTIZMINISTER WOLFGANG BRANDSTETTER

Austria has just cancelled the sovereign guarantee of one of its states -Kärnten- on the outstanding Hypo Alpe Aria Bank debt.

The “Minister of Justice” Wolfgang Brandstetter said to the Press: “One could have never believed in the sovereign guarantee…Every bigger investor should have known that a 25 bn € guarantee taken by an annual state budget of 2 bn € can never work …”

Source: Posted by Martin Armstrong

Quadruple Witching Day Approaching

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Quadruple witching day occurs four times a year, on the third Friday in the last month of each quarter.

The expiration date for four types of standardized contracts: stock options, stock index options, stock index futures, and single stock futures.

In the past, when all contracts expired at the same hour of the day, trading could be extremely volatile as professional investors attempted to capitalize on pricing differences.

Investors often unwind their positions on these contracts on, or immediately before quadruple witching days, which leads to increased trading volume on those days.

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Quadruple witching day occurs once every quarter on the third Friday of March, June, September, and December;

stock options, stock index options, stock index futures contracts, and single stock futures expire on the same day in the United States.

Triple witching hour:
The four times a year that the S&P futures contract expires at the same time as the S&P 100 index option contract and option contracts on individual stocks.

It is the last trading hour on the third Friday of March, June, September, and December, when stock options, futures on stock indexes, and options on these futures expire concurrently.

Massive trades in index futures, options, and underlying stock by hedge strategists and arbitrageurs cause abnormal activity and volatility, as traders and arbitrageurs unwind investment positions and produce large price movements in securities.

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