Haynes and Boone Redetermination Survey Called "Eerily Prescient" by PointLogic Energy


It was supposed to be a “Blacktober” for oil and gas borrowers as banks were expected to be not just stingy but downright scary during this second round of credit redeterminations. Analysts of oil and gas companies were very much expecting more tricks than treats but so far the banks, while maybe not doling out the chocolate bars, certainly haven’t been slamming the door in borrowers’ faces ...

Before the October redeterminations commenced legal firm Haynes and Boone conducted a survey of 182 “key players in oil and gas players in financing” who forecast a 39 percent decline in in reserve borrowing ability with respondents expecting 79 percent of borrowers to see a decrease in their borrowing base.

The 39 percent figure from the survey is eerily prescient as Emerald Oil’s borrowing base was slashed by 40 percent to $120 million.

According to its Houston office partner Jeff Nichols, ”What really stood out to us was the contrast between the results of the spring and fall survey [and] there is recognition that more action needs to be taken to reduce debt through equity investment, restructuring or even bankruptcy.” The fall survey also showed these financial respondents believe a third of energy borrowers would either negotiate terms with a lender or sell non-core assets and 18 percent might seek funding from private equity or hedge funds. Only 2 percent of borrowers were expected to resort to selling their company and only 7 percent to restructure or declare bankruptcy.

The firm’s energy practice chair Buddy Clark said, “We don’t know how long it will take, but we do know that at some point, prices will rise and the industry will bounce back. When regulators are pressuring banks to clean up their energy portfolios, they should be taking this into consideration. If financiers have confidence in the rise in oil and gas prices, they should be looking for the opportunity to provide financing to producers for bottom dollar now with confidence they will come out on top.”

Excerpted from PointLogic Energy. To read the full article, please click here.

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