The net debts of the largest Western oil companies have surged by a third over the past year, increasing their vulnerability to another fall in oil prices.  The aggregate net debt of the 15 largest North American and European oil groups rose to $383bn at the end of March, up $97bn from 12 months ago, according to company reports compiled by Bloomberg.  Oil companies’ revenues have slumped as a result of the crash in crude prices that began in the summer of 2014. Although they have cut capital and operating costs sharply, most of them have had to borrow to finance their investment programmes and dividend payments.

The debt surge was particularly sharp in the first quarter of this year, when oil prices dropped to a low of about $27 per barrel.  Although interest rates are near record lows and oil prices have since recovered, ending last week at about $49, the increased indebtedness of the industry means it will face greater difficulties should oil prices slip back again.  That would be likely to mean more job losses and investment cuts, as well as possibly dividend cuts and more defensive mergers and acquisitions.  Part of the increase in oil debt over the past year is accounted for by the $19bn cash component of Royal Dutch Shell’s acquisition of BG Group. But all the large companies have reported sharp increases in their borrowings.

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