U.S. shale companies to boost spending as banks loosen purse strings

Thu Dec 29, 2016 8:36am EST
 
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By Swetha Gopinath

(Reuters) - U.S. shale drillers are set to ramp up spending on exploration and production next year as recovering oil prices prompt banks to extend credit lines for the first time in two years.

The credit increase is small, but with major oil producers worldwide aiming to hold down production in 2017, U.S.-based shale drillers are looking to boost market share to take advantage of higher prices, and greater availability of capital will make that easier.

North America-focused oil and gas producers are expected to increase capital investments by 30 percent in 2017, according to analysts at Raymond James.

A number of shale producers including Pioneer Natural Resources Co (PXD.N: Quote), Diamondback Energy Inc (FANG.O: Quote) and RSP Permian Inc RSPP.N have forecast bigger budgets and increased output for next year.

Every six months, oil and gas producers negotiate credit with banks based on the value of reserves in the ground. Through the latest round of talks in the fall, 34 companies had their available credit lines raised an average of about 5 percent, or more than $1.3 billion, according to data compiled by Reuters.

The combined bank credit for the companies stood at $30.3 billion, compared with $28.9 billion at the end of spring 2016.

The industry's available credit had been cut by 40 percent over the past three reviews as it contended with a two-year price rout.

"The 'animal spirits,' seem to be coming back to the exploration and production market, albeit slowly," said Reorg Research analyst Kyle Owusu, referring to the human emotion that drives confidence.   Continued...

 
A pumpjack brings oil to the surface  in the Monterey Shale, California, April 29, 2013. REUTERS/Lucy Nicholson