Wall Street Lenders Growing Impatient With US Shale Revolution

(Bloomberg) -- Halcon Resources Corp. almost ran into trouble with its banks in June 2013. And again in March 2014. And in February 2015.

Each time, the shale driller came close to violating debt limits set by its lenders, endangering a credit line that provided as much as $1.05 billion in much-needed cash. Each time, Halcon’s banks, led by JPMorgan Chase & Co. and Wells Fargo & Co., loosened their restrictions, allowing Halcon to keep borrowing.

That kind of patience may be coming to an end. Bank regulators have issued warnings on the risks involved in lending to U.S. drillers, threatening a cash crunch in an industry that’s more dependent than ever on other people’s money. Wall Street has been one of the biggest allies of the shale revolution, bankrolling thousands of wells from Texas to North Dakota. The question is how that will change with oil prices down by half since last year to about $50 a barrel.

“Lenders in general are increasing pressure on oil companies either to raise more equity or do some sort of transaction to pay down their credit lines and free up extra cash,” said Jimmy Vallee, a partner in the energy mergers and acquisitions practice at law firm Paul Hastings LLP in Houston.

West Texas Intermediate oil, the U.S. benchmark grade, rose 14 cents to $50.29 a barrel on the New York Mercantile Exchange at 8:44 a.m. Tuesday.

Next Reevaluation

Banks are already preparing for the next reevaluation of oil and gas credit lines, reviews which typically take place twice a year in April and October. The loans are based on the value of drillers’ producing reserves, which has shrunk as oil prices fell. Many companies are also losing protection as hedges that locked in prices as high as $90 a barrel begin to expire.

“There’s another redetermination cycle in the fall,” Marianne Lake, chief financial officer at JPMorgan in New York, said July 14 during a conference call to discuss the company’s earnings. “And I’m not going to say likely but it’s possible we’ll be selectively downgrading some clients.”


View Full Article

Copyright 2016 Bloomberg News.


Click on the button below to add a comment.
Post a Comment
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.


Our Privacy Pledge

Most Popular Articles

From the Career Center
Jobs that may interest you
United States Houston: Account Rep, Bus Dev, Sr
Expertise: Business Development|Sales
Location: Houston, TX
SXL- Manager, Business Development
Expertise: Business Development
Location: Newtown Square, PA
Senior Financial Analyst Job
Expertise: Accounting|Financial Analyst
Location: Denver, CO
search for more jobs

Brent Crude Oil : $49.98/BBL 1.59%
Light Crude Oil : $49.18/BBL 1.56%
Natural Gas : $2.73/MMBtu 1.44%
Updated in last 24 hours