Will Banks Allow Another Slew Of Oil Bankruptcies?
by Irina Slav via OilPrice.com,
Apr 21, 2017
Last week, U.S. banks boosted the borrowing bases for several independent energy companies, lifting spirits in the industry. The move was taken as a sign that lenders are beginning to share in the optimism that oil and gas producers have been enjoying since the beginning of the year, with prices staying above $50.
While some banks seem to be sharing some of the optimism, others are more cautious. A recent analysis from Bloomberg Gadfly’s Lisa Abramowicz reveals that a lot of energy companies with revolving credit lines are tapping deep into these resources. Abramowicz cites data from Bloomberg Intelligence that shows at least 11 companies have used up more than two-thirds of their credit lines.
Banks, Abramowicz says, do not like this, so they may well decide to cut the credit lines of companies they consider risky. They can afford to—exposure to the oil and gas industry is more modest than it was three years ago, and Abramowicz argues that lenders can afford to let some smaller companies go under.
The latest Haynes & Boone borrowing base survey reveals that banks believe a fifth of energy companies will see their borrowing bases cut this year. The industry is a bit more pessimistic, seeing the portion of companies to suffer credit line cuts at 27 percent.
Now, this could be interpreted in two ways. One is the optimistic way, which basically comes down to “It’s just 20 percent, the other 80 percent are doing well.” That’s certainly true, and the latest demonstration of the optimistic view came less than a moth before Haynes & Boone released their survey.