The recent steep drop in oil prices may lead to some oil companies going out of business within a few weeks, according to Amrita Sen, Senior Oil Analyst at Energy Aspects. Sen explained that low oil prices could reduce companies’ borrowing lines of credit from banks, which come up for renewal on October 1. ‘The banks will look back at the last twelve months of WTI prices, which on average has been about $45 a barrel if not lower,’ explained Sen. ‘And suddenly the amount of money available to these U.S. producers to borrow is half, less than half in some cases, compared to a year ago. That makes it very, very difficult for them to continue investing, continue drilling.’ Sen said if prices stay at current levels or drop further, she expects some companies will be forced to file for bankruptcy as early as October. When asked about possible bankruptcy candidates, Sen pointed out that Linn Energy (LINE) and Energy XXI (EXXI) have already exhausted more than 75% of the credit available to them, and they are in a ‘more tricky position’ than some of the bigger companies.
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