Independent producers and mineral aggregators have always been in the market for unique finance solutions. Recently, however, traditional banking alternatives have become less attractive.
In March, law firm Haynes and Boone LLC released their Spring 2019 Energy Roundup. In it, they discuss the shifting dynamics that have led to banks taking a more conservative approach to energy lending.
U.S. producers are likely to face a “conservative but not knee-jerk response” by banks as they begin spring borrowing base redeterminations, according to a survey by Haynes and Boone LLC.
The law firm’s Spring 2019 Energy Roundup issued this week compiled responses to its borrowing base redeterminations survey, which exploration and production (E&P) companies face twice a year as banks review their debt levels.
Redeterminations for the spring are following somewhat mediocre earnings results for the fourth quarter of 2018 following the drop in oil prices late last year. The survey, the ninth by Haynes and Boone since April 2015, polled E&Ps, energy lenders, private equity firms and other industry participants for insight into future borrowing capacity, i.e., the borrowing base.
The latest survey “reflects a sense of relative calm in the reserve-based lending world despite the 2018 oil price declines,” the firm said. About 40% expect borrowing bases to remain the same, while more than 30% predicted slight declines to borrowing and 20%-plus expect to see slight increases.