This article focuses on the company Resolute Energy, that
was part of the big energy boom but is now unsteady, because they borrowed a
lot of money and are having trouble getting it back. This trouble could lead to
many layoffs and losses for investors as well as banks. When Resolute announced
that they were buying land for oil investors came running. The problem was that
the company had little knowledge of the cost associated with horizontal
drilling. Getting money was easy in this industry until the plunge in oil
prices occurred. Banks then started to cut down the size of credit line for the
company and imposed new conditions for lending. All of this together caused
their stock price to decrease. But Resolute like many other companies have come
up with ways to pay their investors back. If there is still a need for oil
these companies wont give up they will find new ways to get money and stay
alive.
http://dealbook.nytimes.com/2015/02/02/slump-in-oil-prices-brings-pressure-and-investment-opportunity/?ref=business
2 comments:
This is a very tough time for the oil industry. A cutback in drilling will affect many communities.
According to BLS, "The boom created at least 200,000 jobs at oil and gas companies over the last five years."
The price slump has put pressure on the oil industry and there is a chance that companies such as Resolute might have to downsize.
Will this just create a structural unemployment?
Hannah, do you view this as a market correction or something more? Oil has been exceptionally heated the past few years, and now we are witnessing a glut that is driving price down. Also, how do you view OPEC's action (or inaction in this case)?
Erica, you raise valid points. American oil workers will be impacted by the swing in price, but consumers are enjoying increasing utility from the decline. Some forecasts point to crude as low as $30/barrel. It will be intriguing to follow the market in the coming months to see if these credit issues and prices are a more long-term issue.
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