When the oil prices are as low as they are right now, it’s easy to see that the companies working directly in the oil industry will be affected. The low prices mean that they will not be able to conduct more exploration for new drill sites, and it often means they need to reduce their workforce, resulting in layoffs. However, the lower oil prices are affecting far more than just the oil companies and those who work for them. Banks that back these companies are looking at some leaner times as well.
Over the past several years, banks have been lending large sums of money to many different oil companies, both large and small. According to the NY Times though, this could come back to bite them. They lent the money to the companies during the big boom when oil companies were raking in the money. Now that the prices are lower, it means that the profits for these companies are down, and it could mean that some of the companies are unable to pay back what they owe. This could indicate that the banks could start to feel more of the crunch.
It also means that banks are not going to be lending as freely to companies in the oil and gas field, as least for the time being. They feel it’s too risky for them.
Will the Banks Stay Away from Oil?
One of the questions that some probably have is how long this will last. How long will the banks shy away from the industry? The truth is that the banks really do love the field and lending to these companies because when there’s a boom and everything is going well, it tends to go extremely well. It can mean big profits for everyone.
Even though the prices are low right now, that doesn’t mean that the banks will turn their backs on the industry forever. They are simply being more cautious. When the prices go back up and when we hit another boom, chances are that they will follow the same route as in the past and embrace the companies with open arms. However, this doesn’t do much to help some struggling companies right now that are looking for loans to stay afloat and to try to make it through the tough times. Those companies may want to consider merging with larger companies, or even selling if need be.
About Oil Works Inc.
Oil Works, Inc. is a complete drilling rig equipment manufacturer and service provider based in the Permian Basin for over 20 years. OWI’s product and service offerings include Derricks, Substructures, Drawworks, Mud Systems, Walking Systems, Power Generation, Control Systems, Iron Roughneck Repair and Upgrades and complete Rig Solutions built to API and ISO standards. OWI is also proud to offer 24/7 Service and Support.