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US Oil Drillers Dreading Upcoming Credit Stress Tests

Drillers see the glass as half empty, while their lenders believe it’s half full ahead of the latest round of stress tests for energy companies looking to tap debt and keep pumping.

Borrowers in the oil patch expect to see their borrowing ability slashed more than actual lending institutions do, a new survey from law firm Haynes and Boone indicates. The report comes ahead of the twice-a-year review during which lenders size up oil and gas customers’ reserves so they can judge whether they’re valuable enough to justify drillers’ credit lines.

The value of reserves fluctuates with the cost of oil and gas, and many energy business operations are funded with revolving credit lines. With prices stuck in the $40 to $50 range for much of the year, the latest so-called borrowing base redetermination is coming with a lot of angst.
While lenders expect to see borrowing bases cut by an average of only 16 percent, borrowers are anticipating a decidedly more pessimistic 29-percent reduction. Overall, survey respondents expect the average borrowing base to be trimmed by 20 percent.
“I think it is an indication that borrowers are watching the price of their reserves remaining flat and are trying to be more realistic in their expectations,” Jeff Nichols, leader of the firm’s energy finance practice group, said in a statement.

via CNBC [1]

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Alfonso Esparza

Alfonso Esparza [6]

Senior Currency Analyst at Market Pulse [7]
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza
Alfonso Esparza

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