Oil borrowing bases cut just 2 percent so far, Jefferies says

Over thirty oil drilling rigs are idle in a Helmerich & Payne, Inc. yard along Groening Street in Odessa, Texas, as rig counts drop in the Permian Basin, Monday, May 18, 2015. (Courtney Sacco/Odessa American via AP)
Over thirty oil drilling rigs are idle in a Helmerich & Payne, Inc. yard along Groening Street in Odessa, Texas, as rig counts drop in the Permian Basin, Monday, May 18, 2015. (Courtney Sacco/Odessa American via AP)

HOUSTON — So far, U.S. oil explorers have largely escaped the ire of banks that were expected to cut deep into credit lines based on oil property values that have fallen alongside crude prices.

Lenders have only trimmed a total $450 million from the borrowing bases of some two dozen public oil companies, about 2 percent of the capital available under their reloadable credit facilities, investment banking firm Jefferies says in a new report.

Analysts had expected banks to cut borrowing bases by an average 15 percent across the sector this fall during their semiannual review of the reserve-based loans they made when crude prices were a lot higher.

“It looks generally to me like it’s sort of kick the can down the road approach that’s being taken at this point but that really just pushes the day of reckoning into sort of the first quarter of next year,” Halliburton Chairman and CEO Dave Lesar said in a conference call with investors on Monday.

For instance, Oklahoma City-based SandRidge Energy became the latest to ace its bank review on Monday when it said its lenders hadn’t reduced its $500 million borrowing base.

Jefferies said one reason banks have been flexible is financial regulators, on edge after the 2008 financial crisis, have pushed lenders to shore up extra funds to protect against oil company losses. “Some mild concessions appear to have been won from the regulator, but lenders have clearly been forced to set aside more capital to provision for greater risk in” reserve-based loans, Jefferies said.

But the oil industry’s financial problems are still mounting. Jefferies expects the 24 oil producers it tracks to have 2.9 times debt to pre-tax earnings by the end of the year, compared to 1.9 times the same time last year. If oil stays cheap, the banks’ spring 2016 reassessment period “could be much tougher,” in part because domestic producers have hedged little of next year’s crude production.

And more worrisome still: a large part of the half trillion dollars that oil companies borrowed to fuel the American shale revolution over the last five years, much of it in high yield bonds available amid low interest rates, is coming due sometime between 2018 and 2023. Refinancing will be difficult as capital markets turn away from several of the borrowers, Jefferies said.

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About The Author

Collin Eaton joined the Houston Chronicle's team of energy reporters in 2013, after covering the financial industry for another publication. He writes mainly about U.S. oil companies and developments in international oil markets.