Banks Plan To Cut Oil Lending Even More This Year

Tyler Durden's picture

Authored by Rupert Hargreaves via ValueWalk.com,

Oil lending could go down even more

Even though the price of oil has nearly doubled from its lows printed at the beginning of last year, it seems that for many oil and gas companies, the downturn continues to weigh on operations.

According to the most recent issue of the Haynes and Boone, Borrowing Base Redeterminations Survey, conducted last quarter, around 24% of exploration and production borrowers expect to see a decrease in their borrowing base redeterminations for spring 2017. Even though the number of responses indicating a reduction in borrowing capacity has decreased dramatically since last year (down from 41% in the fall of 2016) it is notable that many sector stakeholders believe further adjustments are ahead despite the changes that have taken place over the past 12 months.

Banks Plan To Cut Oil Lending Further 

163 Borrowing Base surveys were completed for the spring 2017 issue with respondents spread across the lending, producer, services and other oil and related industries. Far more borrowers believe borrowing bases will be cut this year than lenders with 27% of borrowers predicting a cut and 20% of lenders holding the same opinion.

Still, despite the anticipation that borrowing bases will be curtailed further during 2017, almost all of the respondents to the survey (89%) predict that exploration and production capital expenditure budgets will increase in 2017 as compared to 2016, with nearly two-thirds of the respondents expecting those budget increases to be substantial (20% or greater).

While lenders may be considering placing further restrictions on oil and gas company borrowing bases the sector’s funding freeze that was in place for the majority of 2016 seems to be coming to an end. When asked what is likely to be the preferable path for lenders and borrowers to take if faced with a borrowing base deficiency this year, most survey respondents (43%) claimed that they would negotiate an amendment/extensions with the lender.

This time last year only 36% of respondents chose this option. The sale of non-core assets also seems to be more appealing, with 37% of respondents stating that they will take this option if faced with a funding shortfall, up from 31% this time last year. The biggest change in sentiment seems to be regarding bankruptcy. Only 3% of respondents to the survey indicated that they would use this option if faced with a funding shortfall, down from 13% in the fall of 2016.

On the other hand a Reuters article notes:

Investors who took a hit last year when dozens of U.S. shale producers filed for bankruptcy are already making big new bets on the industry’s resurgence.

 

In the first quarter, private equity funds raised $19.8 billion for energy ventures – nearly three times the total in the same period last year, according to financial data provider Preqin.

 

The quickening pace of investments from private equity, along with hedge funds and investment banks, comes even as the recovery in oil prices from an 8-year low has stalled at just over $50 per barrel amid a stubborn global supply glut.

So maybe it is just a matter of how one looks at the data?

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mily's picture

So many shorts, so little time....

Arnold's picture

Invest in yourself.
This sounds pretty good, Perhaps an old fashioned oil can with the company logo on it, for a thank you chachkie.

#Gofundme

https://www.gofundme.com/success/?pc=thrive_google_search_branded_genera...

Arnold's picture

Little oil is always going to live on the edge.
Wildcatters is a well deserved reputation.

Arnold's picture

The Jungle drums are quietly saying that the Chinks are saving their pennies for the Saudi Aramsco Play.
The real slosh is is held in check for ownership rights.

Long term looking forward to the issue, if there is a money world left, it should be a moonshot.

Oh, and the Ghost Who Walks has got a new caper in progress.

Government needs you to pay taxes's picture

Is there a possibility .gov is centrally-planning the oil investments by controlling the large banks?  If yes, private equity is gonna make a killing.  Nothing sweeter than hearing the press sluts talkin' bout oil gluts.

Arnold's picture

Well... if we go the way of the warrior, all commodity assets become .gov property, with some Patriotic compensation.

If we go the way of the worrier, well,.. price following demand will decline.

If we go the way of the manipulator, prices will be relatively steady with a pressure towards higher.

Pick your poison.

BritBob's picture

Falklands Oil - worth a punt?

 

Rockhopper Exploration has issued an update on planning for Phase 1 of the Sea Lion oil field development in the offshore North Falkland basin. Operator Premier's latest estimate of capex to first oil is US$1.5 billion, with life of field costs (capex, opex, and lease) of around US$35/bbl for Phase 1.

 Rockhopper CEO Sam Moody described this as “highly attractive” in the context of the current oil price. The estimated break-even price is US$45/bbl.
The partners have submitted an environmental impact statement and revised draft field development plan to the Falkland Islands government, and discussions are set to continue on a range of operational, fiscal, and regulatory matters.
They have also reached a settlement on an insurance claim relating to costs incurred on the Isobel Deep exploration well during the 2015/16 North Falkland basin exploration campaign. Value is US$90 million (after deductions) on a gross basis. (MercoPress 23.12.16)

What about the Argentinians?

Falklands – Territorial Waters: https://www.academia.edu/10574593/Falklands_Islands_Territorial_Waters

 

All hot air...

Last of the Middle Class's picture

Over leveraged oil companies selling press releases telling how much their next oil will produce (trillions of course). What else is new? Demand for oil is slowing as MAGA takes hold and refuses to stop government interference in what used to be a free and competitive market. You can't take 17% of the economy under the government wing and promise subsidies to insurance and pharma forever without consequences. The cash flow taken out of fly over America accounts to pay for the Obamacare welath transfer will never be "estimated" on CNN, you can bet your ass on that as car lots pile up and every retail store in America has some sort of Red and white sign over the entrance advertising their "cheap" prices. Whoever is making the red and white signs should be doing quite well, the rest of America, not so much. Thanks Paul Ryan. We appreciate that more than you know.

A. Boaty's picture

Government interference in petroleum markets? Maybe you had this in mind:

G20.gov annual subsidies for fossil fuel = $444 billion

USA.gov annual subsidies for fossil fuel = $20 billion

Posthttps://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opini...

shortonoil's picture

 

It will be interesting to see how investor react when refineries start cutting production runs.

With prices artificially jacked up to help the banks, and refinery yields falling through the floor they soon won't have any other choice. Then we'll get, "no one saw this coming"! Same BS different day, and just enough suckers remaining to make a buck.

 

http://thehillsgroup.thehillsgroup.info/p/040217refinery-yieldsthe-et-mo...

Fed-up with being Sick and Tired's picture

Headline does not match the contents of the article:

 

"..................the sector’s funding freeze that was in place for the majority of 2016 seems to be coming to an end."

 

So, which is it?  FUNDING FREEZE and LOWER BORROWING VOLUMES or the freeze is ending.   I am corn-fused.

 

 

BingoBoggins's picture

... but, but, yesterday they were all in?!