Graphic: Shale drillers squeezed as banks tighten credit after oil crash

Rose Hill Acquisition

01/07/2020 18:30

By Arunima Kumar and Shariq Khan
    July 1 (Reuters) - Months into one of the worst oil price
crashes in history, lenders have tightened the screws on shale
producers by wiping away 20% of the credit that has helped fuel
the industry's boom.
    Twice every year, oil and gas producers negotiate how much
credit they should get from banks based on the value of their
reserves in the ground. Those loans, called RBLs, are the
industry's key financing tool.  urn:newsml:reuters.com:*:nL1N2BH1JW
    So far in the spring season of redeterminations, the total
borrowing base for three dozen publicly listed North American
oil companies has been slashed by $7.5 billion, according to a
Reuters analysis.  urn:newsml:reuters.com:*:nL4N2E32OD    
    Oil prices are trading around $40, down 35% this year due to
coronavirus-related demand worries and a Saudi-Russia pricing
war, and many oil companies cannot break even at these levels.
    "Prices are just way down and so the banks are having to
reduce the credit line for that," said Kraig Grahmann, partner
at Texas-based law firm Haynes and Boone.
    "The other issue is that banks themselves are trying to do
what they can to reduce their exposure to the oil and gas
lending space."

    Oil companies run their day-to-day operations using credit
and many, including Antero Resources  AR.N  and Callon Petroleum
 CPE.N , have already drawn large amounts out of the RBL. Some
others drew down heavily in the weeks after prices crashed,
saying they would need the cash to survive.
    In response, banks have raised interest rates and are adding
'anti-hoarding' clauses to many facilities to restrict how much
cash a company can keep on hand and are pushing them to use the
excess cash to repay debt.
    "The top five banks engaged in oil and gas lending are
estimated to have at least $40 billion-$50 billion in
commitments to RBLs," said David Morris, managing director in
Dacarba LLC's restructuring group.    


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RBL cuts leave little money on the table    https://tmsnrt.rs/3gjndsm
U.S. crude prices    https://tmsnrt.rs/2Zy8p2G
Banks rush to rein in financing for oil firms     urn:newsml:reuters.com:*:nL5N2CA6GG
Top 10 cuts to borrowing bases    https://tmsnrt.rs/2VxphVS
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 (Reporting by Arunima Kumar and Shariq Khan in Bengaluru;
Editing by Sweta Singh and Saumyadeb Chakrabarty)
 ((Shariq.Khan@thomsonreuters.com; Within U.S.+1 646 223 8780,
outside U.S. +91 80 6182 2681; Twitter: @shariqrtrs;))