Nearly half of Goldman Sach’s oil and gas loans are now tied to junk-rated firms, the company said in its annual 10-k filing.
According to Bloomberg, non-investment-grade firms now account for 40 percent of the bank’s loans and lending commitments to oil and gas companies.
Goldman’s loans and lending commitments to junk-rated oil and gas firms are currently worth $4.2 billion, with loans to energy firms rated below investment grade coming in at $1.5 billion along with $2.7 billion related to lending commitments.
The bank’s total credit exposure to oil and gas companies tied to loans and lending commitments was $10.6 billion as of December 2015.
“Significant declines in the price of oil have led to market concerns regarding the creditworthiness of certain companies in the oil and gas industry,” Goldman said in the filing.
Goldman’s credit exposure related to derivatives and receivables with oil and gas companies stood at $1.9 billion as of December, with the bulk of that exposure tied to investment grade firms, according to the filing.
The bank’s total market exposure to oil and gas firms fell to negative $677 million in 2015, down from $805 million a year ago.
Investment-grade issuers or underliers account for the majority of Goldman’s market exposure related to oil and gas companies, the company said.
The extended oil price rout and swelling crude inventories have stoked concerns that the oil and gas sector may be hit by a wave of bankruptcies.
According to a recent report from Deloitte, nearly 35 percent of pure-play E&Ps listed worldwide, or about 175 companies, are at a “high risk” for insolvency.
“The probability of these companies slipping into bankruptcy is high in 2016, unless oil prices recover sharply or a large part of their debt is converted into equity or big investors infuse liquidity into these companies,” Deloitte said.
Low crude prices may also make it more difficult for those firms that have already sought bankruptcy protection to exit restructuring.
Although more than 80 percent of U.S. E&P firms that have filed for bankruptcy since July 2014 are still operating under Chapter 11 protection, Deloitte found tat the majority of those restructuring plans were approved when oil prices were around $55 to $60 per barrel.