Cheap Oil Threatens Debt Squeeze for Smaller UK North Sea Producers
LONDON, March 2 (Reuters) - Small and mid-sized independent oil producers in the British North Sea could face a financing squeeze this year as banks cut lending linked to the value of oil reserves, following last year's oil price sell off.
Unlike the oil majors, which can slash headcount and delay projects, smaller firms tend to be reliant on few fields, and those that are mid-project have little choice but to continue with their capital expenditure.
"Where companies have committed to projects when the oil price was $100-plus and their capital budget was set in advance, there's not much they can do to defer expenditure," James Hosie, director, energy research at Barclays Capital, said.
"Retaining access to debt headroom is critical to ensure they have the flexibility to weather the downturn."
But with oil prices tumbling from over $100 in June 2014 to around $60 today, banks are likely to reduce the amount of lending they are willing to make based on the valuation of reserves at the next round of assessments.
"There is a squeeze happening or going to happen," Brian Campbell, oil and gas capital projects director at PWC, said.
"If you've got a lot of reserve-based lending and a lot of debt, and you're already quite drawn on that, you're going to be in a world of pain," said Christopher Wheaton, manager of the Allianz Energy fund.
View Full Article
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- Det Norske to Acquire Noreco's Norwegian Portfolio (Mar 02)
- Noreco Oil UK Receives Huntington License Default Notice (Nov 02)
- Noreco CEO Steps Down (Oct 13)
Company: EnQuest plc more info
- EnQuest Profits Slide On Slower Kraken Oilfield Ramp-Up (Sep 07)
- Kraken 2Q Start-up 'On Track' (Feb 17)
- Unite Pledges to Protect BP Workers in EnQuest Transfer (Jan 25)