US shale oil firms feel credit squeeze as banks grow cautious
By Swetha Gopinath and David Henry
April 11 (Reuters) - Nearly two years into an epic oil rout, U.S. shale drillers that have upended global energy markets are finally feeling a credit squeeze as banks make their biggest cuts yet to their loans.
Every six months, oil and gas producers and their banks negotiate how much credit they should be given based on the value of their reserves in the ground.
In previous reviews, banks were willing to offer borrowers some leeway, encouraged by producers' hedges against falling prices and their ability to keep cutting costs in step with crude's slide that began in mid-2014.
This time, with many companies' hedges largely gone and crude prices used in the reviews as much as 20 percent lower than six months earlier, banks are getting tough.
Just a few weeks into the current round of talks more than a dozen companies have had their loans cut by a total of $3.5 billion, equivalent to a fifth of available credit, according to data compiled by Reuters. (Graphic:tmsnrt.rs/1S9304F ]
At that rate, $10 billion more of bank credit will disappear as a remaining $50 billion or so of credit lines come under scrutiny in talks that stretch into May.
Companies and bankers contacted by Reuters declined to comment beyond their public statements due to the sensitive nature of the talks.
The squeeze puts further pressure on the shale industry to sell assets, cut jobs and drilling and shrink capital spending. It also raises the risk that more companies will tip into bankruptcy. Continued...