S&P Global Ratings said in a Sept. 9 note that oil and gas companies with large amounts of speculative-grade, distressed debt maturing through 2024 face increased refinancing risks.
The oil and gas sector will need to refinance 51% of its speculative-grade debt through 2024. Distressed debt — company debt that is either in default, is under bankruptcy protection or is moving toward those situations — makes up 18% of that debt, Ratings said.
Distressed credits in the oil and gas sector rose by 30 in August, the highest increase of any sector covered by Ratings. The increase drove the sector's distressed ratio spreads, or the number of distressed securities divided by the total number of speculative-grade issues, to 36.4% from 18.4%, Ratings said.
Chesapeake Energy Corp., Gulfport Energy Corp. and Whiting Petroleum Corp. had most of the new distressed issues in the sector, along with Rowan Cos. PLC, which merged with Ensco PLC in April. The combined entity is now known as Valaris PLC.
The distressed ratio spreads have widened considerably over the past few months to levels not seen since 2015, when defaults in the sector spiked, Ratings said.
New issuance in the sector is the weakest since before the financial crisis in 2006, at $5.5 billion through Aug. 16, Ratings said. The trailing nine-month proportion of speculative-grade new issuance in oil and gas dropped significantly in August, to 15.7%.

"A number of issuers with distressed issues — those rated by S&P Ratings in the 'B' category and below — will face refinancing risks in the short term if financing conditions do not improve," Ratings said in August.
Ratings warned in August that tightening credit is likely to hit the shale gas sector hard this fall. The rating agency lowered the natural gas price it uses in credit determinations to $2.25/MMBtu for 2019, an 18% reduction, and by 9% to $2.50/MMBtu for 2020. The price reduction was in anticipation of more "free" gas hitting the market from Permian Basin shale oil wells when Kinder Morgan Inc.'s 2 Bcf/d Gulf Coast Express Pipeline LLC pipeline opens in the fall. Permian shale gas is often termed "free" because most oil producers are largely indifferent to its price and at times offload it for negative prices.
The risks are even higher for lower-rated oilfield services sector companies, such as deepwater driller Valaris, whose pricing power is increasingly limited by a combination of more efficient equipment and operations and restrained capital spending by their customers, Ratings said.
It is increasingly vital for oilfield services companies to address upcoming debt maturities, S&P Ratings said. "The sector failed to recover fully from the last downturn and is facing yields of around 20% for the weakest credits, and only slightly better for the overall speculative-grade universe."
