Banks facing huge losses from to their exposure to troubled oil and gas companies


The business newspapers and magazines have published both good news and bad news about oil and gas industry. According to an article that was published on 4th January, 2016, Woodside Energy discovered deep-water gas in the Rakhine basin early January this year. Many companies have shown interest in partnering with Woodside Energy Company. The extraction of the gas will start later in 2016 and it is believed that it will create massive employment. Maersk Oil’s AlShaheen is progressing well as planned. However, these are just a few companies that have not lost track. Over 40 oil companies in North America filed for bankruptcy in the year 2015 and this is estimated to get worse since the industry continues to face distress. This low production has greatly affected the banks they get loans from, as well as employment and other business opportunities that are associated with the oil/gas industry. Oil and gas companies are moving to new frontiers in Africa such as Angola, Kenya, Sudan and Equatorial Guinea to mitigate these losses.

According to Chris Helman, a Texas-based senior editor, the exposure of banks to oil companies that are troubled is increasing since the oil companies are moving slowly towards bankruptcy. Recently, Midstates Petroleum took a loan of 249 million USD from SunTrust bank, out of its 750 USD million credit line. The Linn Energy took 919 million USD from Wells Fargo that maxed out its 4 billion USD line with the bank. SandRidge Energy borrowed the remaining 489 million USD from Royal Bank (Canada), out of its credit line of 1 billion USD with the bank. Banks in Houston have accepted the fact that they are falling steadily as a result of being exposed to these breaking oil companies. Wells Fargo revealed to its investors last week that 17.4 billion USD is what is currently outstanding in the oil loans. If what Wells Fargo has committed to give out, the total exposure adds up to 42 billion dollars. Ratings on the regional banks that are exposed to oil credits has been cut this week by the Standard and Poors. Some these banks are BOK Financial, Comerica, Cullen/Frost Bankers and the Texas Capital Bancshares. The investors of these banks were nervous; the shares are already down with an average of 30% during the past 3 months. Many investors are seeking alternative investments such as the formation of offshore companies through offshore service providers such as GWS to multiply their wealth.

According to the regulators of the Federal bank, loans to the oil companies added up to 276.5 billion USD in the year 2015, this means that losses caused by oil loans could top 25 billion dollars.


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