US producers fall borrowing base seen steady: Survey
Houston, 6 October (Argus) — US oil and gas producers expect the fall review of their borrowing capacity to largely hold steady, within 10pc of current levels, a survey by law firm Haynes and Boone said.
Banks review producers' ability to borrow in a semi-annual exercise called borrowing base redetermination, in which the lenders calculate value of their oil and gas reserves, typically their most important asset, based on price forecasts. If the value of their reserves falls, banks can put pressure on them to repay debt sooner.
Respondents on average expect 26pc of companies to see a decrease in their borrowing base in the fall, the survey showed, versus 41pc expected to see a decrease a year earlier.
"With the fall in prices since 2015, producers and their service companies have brought drilling costs down so that $50/bl is the new $75/bl," said Buddy Clark, co-chair of the law firm's energy practice. "The industry has adjusted to the new normal."
Producers who took part in the survey were more pessimistic than lenders surveyed about where borrowing bases are heading this fall, with 29pc of them expecting a see a decrease versus 19pc of lenders. That outcome seems counterintuitive given producers generally are more optimistic and bankers are more conservative, Clark said.
"It may be that banks remain reluctant to take any aggressive action reducing borrowing bases closer to their true value for fear of putting too much pressure on some producers who have been financially distressed since the beginning of this downturn in prices," Clark said.
The survey also found that only 5pc of respondents expect companies to file for bankruptcy because of a borrowing base deficiency, versus 13pc last fall. This may also reflect banks' reluctance to push producers into bankruptcy.
Overall, oil and gas producer bankruptcy filings for the first half of 2017 have decreased to 14 compared to 70 a year earlier, the law firm said.
An improvement in oil prices and better access to credit and funds particularly from private equity investors is also helping the bankruptcy rate. More than two-thirds of respondents to the Haynes and Boone survey believe that over half of the new reserved-based loans entered into in 2017 have been with borrowers backed by private equity.
Some of the large bankruptcies through the oil market downturn that began in 2014 include Sandridge Energy with total secured and unsecured debt of $8.3bn, Linn Energy with $6bn and Samson Resources with $4.3bn.
"Most of the big bankruptcies have already occurred," said Kraig Grahmann, head of the law firm's energy finance group. "There aren't many surprises left."