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?