Oil Drillers Feel the Pain as Banks Slash Their Credit Lines
Chesapeake Energy Corp., the deeply indebted shale producer, said this week that it can hang on to its $4 billion bank line as long as it posts just about everything it owns as collateral.
Many of its competitors are faring far worse. Almost two years into the worst oil bust in a generation, lenders including JPMorgan Chase & Co., Wells Fargo & Co. and Bank of America Corp. are slashing credit lines for struggling energy companies. It’s a tacit acknowledgment that energy prices aren’t coming back, and represents an abrupt turnaround from last year when banks were lenient on struggling drillers in the hope that better times were coming.
Since the start of 2016 lenders have yanked $5.6 billion of credit from 36 oil and gas producers, a reduction of 12 percent, making this the most severe retreat since crude began tumbling in mid-2014, according to data compiled by Bloomberg.
And it isn’t over yet. Banks are in the middle of a twice-yearly review of energy loans, where they decide how much credit they are willing to extend to junk-rated companies based on the value of their oil and gas reserves. With crude hovering near $40 a barrel, drillers’ assets are worth far less than they were two years ago.
In some cases, companies are finding the amount they can borrow based on their oil and gas reserves is getting cut to a level below the amount the company has outstanding, effectively leaving them overdrawn. Midstates Petroleum Co. said in a filing that it had drawn $252 million on its credit line as of April 1, but the facility was reduced to $170 million.
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http://www.bloomberg.com/news/articles/2016-04-12/oil-drillers-feel-the-pain-as-banks-slash-their-credit-lines