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A death sentence for small oil and gas drillers



Some of the largest banks that finance US oil and gas drillers have recently lowered expectations of oil and natural gas prices, by determining the value of companies' reserves and loans they can receive from these reserves.

Wells Fargo, JP Morgan Chase, and Royal Bank of Canada, among others, have reduced the value of reserves from oil and gas companies, according to more than a dozen banking and industry sources familiar with the turnaround of the loan base. [19659002Verdienavreserverestimertavbankerfungerersomgrunnlagformangesmåolje-oggassfirmaerforåfåfinansieringforderesboreaktivitetogvirksomhetOgdesistemånedeneimangetilfellererdettedenenestekildentilfinansieringsommangeavdemkanfåfordiaksje-ogobligasjonsmarkedeneerpraktisktaltstengtforsmåolje-oggasselskaperakkuratnå

With the discounted value of the reserves, drillers now have an even more limited access to capital than previous months.

The fall 201

9 survey conducted in September by Haynes and Boone, for the first time since 2016, counted the majority of those surveyed that loan bases would decline during the re-election season this month.

According to Reuters sources, banks have cut expectations for both natural gas and oil prices compared to the previous turnaround season last spring. Forecasts for natural gas were reduced by around 20 per cent, which industry sources say would cut the loan by 15-30 per cent. Banks are now seeing natural gas prices of $ 2.00-2.35 per million UK thermal units (MMBtu) over the next 12 months. According to Reuters sources, oil prices are now between $ 1 and $ 2 barrels less than projected in the spring provision.

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The lower loan base for loans could put additional pressure on smaller US borrowers, as other forms of funding are not available now.

"Use of debt and equity capital markets as a source of capital for producers has gone from our small spring survey in 2019 to reducing the fall 2019 survey," Haynes and Boone said in their survey just before one of the turnaround season.

“E&P companies will remain involved in capital sources for a while. Public stock markets – a primary source of capital for upstream oil and gas companies before 2018 – will not reopen until 2021 or later, ”Haynes and Boone noted.

By Tsvetana Paraskova for Oilprice.com

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