Haynes and Boone in Financial Times: U.S. Oil and Gas Battles Bank Lenders


Energy companies in the US are struggling through the collapse in oil and gas prices, cutting costs and clinging on despite the odds. Now life is set to get a lot tougher as banks re-evaluate their lending agreements with small and midsized oil and gas producers.

Negotiations over “bank borrowing bases” will be key to whether or not oil companies file for bankruptcy protection, or restructure their debts with bankers in the next three to six months. Here’s what they are, how they work and why they are so important.

So what’s a borrowing base?

It’s basically the maximum amount of money a bank will lend to an energy company. It’s based on the value of oil and gas they own, which is linked to the volume of their reserves and, crucially, market prices...

How bad can it get?

Law firm Haynes and Boone just put out a survey of lenders, borrowers and professional service providers in the space. They’re expecting an average 39 per cent decrease in borrowing bases.

Some companies will endure those cuts more easily than others. Bank of America says only a fifth of “higher-quality” energy companies they track have used up more than half of their borrowing base capacity so far...

Energy companies still have options, though they all come with caveats. Again from Haynes and Boone.

First of all, they can negotiate with the banks for extensions that save them from them bankruptcy. That is what most people surveyed by Haynes and Boone expect.

Excerpted from Financial Times. To read the full article, click here.

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