base calculations and corresponding
liquidity would contract, potentially
impairing a highly leveraged E&P
company’s ability to continue to
service its capital structure.
As has occurred in the natural
gas market, new technology has
provided significant growth in liquids
production in North America; for
example, the Canadian oil sands,
deepwater Gulf of Mexico, shale
plays, and natural gas liquids have all
contributed to increased production.
This increase without correspondingly
managed cuts in production by the
OPEC countries, coupled with potential
geopolitical issues impacting the
transport of oil around the globe or
macroeconomic issues impacting
demand in Asia, could potentially impact
the supply/demand equation and result
in a significant decline in oil prices. It
is difficult to quantify the effect that a
given decline in oil prices would have
on the sector, but there are numerous
E&P companies that have financed their
growth through the issuance of debt.
Figure 5
E&P High Yield Issuance Since 2009
$20,000
$19,350
$18,755
$17,885
$18,000
E&P HY Issuance ($ in millions)
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
$11,601
$6,260
$5,191
2009
$150
$7,775
$10,630
2010
$350
$8,050
$8,010
$1,825
2011
$12,485
$4,500
$7,060
2011
Jan.-Apr.
$925
$6,850
$11,350
2012
Jan.-Apr
$1,150
CCC (+/-)
B (+/-)
BB (+/-)
Source: S&P LCD Comps
The continued strength in oil prices
and low interest rates in recent years
have resulted in a tremendously
active high-yield market for E&P
issuers seeking to refinance existing
debt, finance acquisitions, or fund
development programs. E&P companies
issued more than $48 billion of high-
yield debt from 2009 to 2011, with
more than $26 billion of that rated by
S&P at single B or lower (Figure 5).
During that period, median issue size
increased from $300 million in 2009
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