Oil, Gas Producers Could See More Money from Lenders in 2018
Oil and gas producers have a reason to be optimistic, if results from law firm Haynes and Boone, LLP’s recent survey is any indication.
The September 2018 borrowing base redetermination survey which included responses from oil and gas producers, service companies, financial institutions, private equity firms and professional services providers revealed that more than 78 percent expect borrowers to see a borrowing base increase in Fall 2018. And 36 percent of respondents expect borrowing bases to increase by 20 percent or greater.
“The survey shows that optimism for the upstream oil and gas industry is really gaining momentum,” Kraig Grahmann, head of Haynes and Boone’s Energy Finance Practice Group, stated in a release. “We have now had several recent surveys, including the Fall 2018 survey, predicting that producers will see borrowing base increases of 10 to 20 percent.”
The survey also found that two-thirds of respondents believe borrowers have locked in prices for the majority of their 2019 production. And producers are expected to use cash flow from operations (21 percent), debt from banks (20 percent) and equity from private equity firms (17 percent) as their sources of capital in 2019.
However, the greatest challenge oil and gas producers will face in 2019 by far, according to respondents, is midstream capacity constraints (42 percent). This is followed by oilfield service costs (19 percent) and commodity price volatility (17 percent).
“In prior years, producers were worried about a sudden drop in commodity prices or high costs of oilfield services,” Grahmann said. “Now … survey respondents were most concerned about midstream capacity constraints in transporting production to market.”
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