The largest banking lenders to the U.S. oil and gas sector are becoming more cau...
) have, as part of regular biannual reviews, cut their estimated values for oil-and-gas companies’ reserves, which serve as the basis for those companies to receive reserve-based loans , according to more than a dozen sources familiar with the activity.
Expected natural gas prices have been cut by around $0.50 per million British thermal units, about 20% below levels set in the spring. Industry sources are forecasting some firms face a 15% to 30% reduction in loan size as a result. Oil prices are expected to be about $1 to $2 lower than spring estimates.
Reduced funding could slow growth in U.S. oil and gas production, and also threaten more bankruptcies in the sector. Bankruptcy filings among U.S. oil and gas producers are at levels not seen since 2016, when U.S. crude slumped to $26 per barrel, according to law firm Haynes and Boone. Smaller RBLs can have huge consequences: Alta Mesa Resources, an Oklahoma-focused producer headed by former Anadarko Petroleum chairman Jim Hackett, filed for bankruptcy a month after its borrowing base was slashed by almost half in mid-August.
Since 2018, the S&P 500 Energy Sector .SPNY is the worst performing sector in the Standard & Poor’s 500, falling 18% against a 12.8% increase for the broader index, and many publicly-traded shale companies have done even worse. Loan covenants are also being tightened, according to a Dallas Federal Reserve Bank energy survey published Sept. 25. The survey said some participants noted banks had lowered the maximum debt level permissible to 2.5 to 3 times earnings before interest, taxes, depreciation and amortization , from 3.5 to 4.0 times.
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