How much of the crude oil produced in the United States is consumed in the United States? How many gallons of gasoline and diesel fuel are made from one barrel of oil? What is U. Does EIA have data on the type or quality of crude oil?
Does EIA have data on the movement transport of crude oil, petroleum products, fuel ethanol, and biodiesel by rail? Does EIA have data on U. How much coal, natural gas, or petroleum is used to generate a kilowatthour of electricity? For companies that meet this profile, it may be the case that equity investors offer an attractive alternative to issuing debt with substantial interest costs and restrictive covenants. Within equity markets, companies are often categorized as "large-cap", "mid-cap", or "small-cap" depending upon their market capitalization.
Equity financing became increasingly challenging for small-cap firms in the aftermath of the U. In the event that market conditions or the challenges of maintaining both production and positive revenue levels proves difficult for smaller, less well-positioned firms in the next few years, it is entirely feasible that another round of industry consolidation via equity markets could again occur.
Credit ratings agencies e. Bonds with lower ratings typically bear higher interest rates, providing a yield premium, or spread, over ostensibly "risk-free" treasury bills.
Many large, integrated oil majors enjoy extremely attractive investment-grade credit ratings and thus pay low interest rates on their debt ExxonMobil has maintained a triple-A credit rating, uninterrupted, for 90 years , although they are not immune to downgrades in the event of large risks materializing. Shell, for example, lost its AAA credit rating for the first time in as it was forced to take significant write-downs in the aftermath of a reserves accounting scandal.
Smaller and newer companies - as are common in the shale oil sector - traditionally bear non investment grade credit ratings, higher interest premiums if they are able to access conventional bond markets at all , and generally start with a strategic disadvantage in securing financing.
These options have seen on an increasingly important role in sustaining U. An indication of the growing interest premiums being paid to finance U. Critically, the upward borrowing limits of such facilities are most often set by a calculation based upon the firm's producing reserves, with comparatively little credit provided for undeveloped or speculative reserve assets.
Other conventional financing mechanism employed by many companies include leveraged loans, such as second lien term loans. These loans are issued with a secondary priority claim to the underlying assets securing the loan, and as such they also demand higher interest rate premiums.
In the oil sector, second lien loan issuance has traditionally been counter-cyclical to high yield bond market activity, such that as one accelerates, the other typically slows. Second lien loans are commonly used as bridge finance to pay off previous liabilities until the company can access capital markets or issue high-yield bonds. In addition to the mechanisms listed above, a number of new, innovative options are being employed with increasing frequency.
The possible attributions for this trend are many, including regulatory changes, broader market conditions such as historically low interest rates, and the shifting preferences of various investor classes. However, the net impact of all of these factors is clear: borrowers have found themselves in a historically advantageous position over the past few years, be it through record low high yield interest rates or "borrower-friendly" features.
These features include, inter alia , "amend-and-extend" provisions allowing borrowers to extend the maturity of loans, even if lenders do not elect the option , "accordion" or "incremental" credit facilities allowing borrowers to increase the size of the credit facility at given intervals , and loan buy-back provisions allowing borrowers to buy back their loans, such as through reverse auctions.
Another potential growth area is represented by producer-user joint ventures, in which the user of a commodity in this case oil or NGLs will take a working interest in shale wells in order to ostensibly hedge future prices. For example, this approach has been utilized by U. Finally, there exists great uncertainty over the future role that foreign primarily Asian investors will play in U. A number of North American oil companies have entered into joint ventures with Asian investors that have seen investors fund exploration and production costs in exchange for an interest in the underlying tight oil reserves.
The link between monetary policy and unconventional hydrocarbon production has been given little coverage in both academic and grey literature. To the extent that insights can be garnered by existing analysis, such insights must be extrapolated from broader work on the relationship between monetary policy and global oil prices, or on the fiscal impact of unconventional hydrocarbon production. First and foremost, monetary policy can have impacts through the oil price mechanism: at the most basic level, the circulation of money can impact demand for, and nominal prices of, commodities.
Recent examples are plentiful. For example, Gilje examined the phenomenon of shale exploration creating local credit supply shocks through the vector of bank deposits associated with the large payments made to mineral rights owners in return for access to resources. Though less-studied, linkages may also exist between monetary policy interest rates and the production function for unconventional hydrocarbons.
Low interest rates on U. From onwards, these markets have been the recipients of large inflows from institutional investors as well, including pension funds, university endowments, and insurance companies.
The demand-supply imbalance for non investment grade credit has driven the interest rate for even the highest-risk bond tranches to historic lows. This, in turn, has provided an accommodating financing environment for the coincident shale revolution in North America. There are indications that the financing environment may prove less accommodating in the near future.
A recent analysis by Sanford C. This ratio appears to be trending upward, as it is an increase over the 2. What remains to be well-documented is the full response of the shale sector to a rising interest rate environment - whether driven by the Federal Reserve or by endogenous industry or firm-level factors.
An initial analysis by Bloomberg of 61 companies revealed that 26 had reduced spending in response to recent increases in interest rates, with a concomitant fall in production expected.
When the Federal Reserve begins to increase benchmark interest rates, interest rates on less risky debt are likely to rise, and depending upon broader market conditions this safer debt may become more attractive to investors.
With less producing reserves against which to secure new lines of credit, some firms' financial leverage may shrink further and drive a positive feedback loop of shrinking shale activity. Although these factors have contributed to a recipe for success in the United States, each new geological and political situation will demand a unique approach to developing shale resources elsewhere in the world.
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