US shale firms see smaller-than-expected cuts to credit lines

Tue Oct 13, 2015 10:26am EDT
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By Amrutha Gayathri

Oct 13 (Reuters) - U.S. shale oil and gas producers have seen smaller-than-expected cuts to their credit lines, a sign that banks could be relaxing their lending standards to help companies avoid technical defaults.

Companies that hold nearly a third of the energy industry's $100 billion or so in reserve-based loans - borrowed against their oil and gas reserves - have reported a 1.4 percent net drop in credit lines.

Most analysts were expecting at least a 10 percent cut to credit lines after the bi-annual process of revising oil and gas reserve valuations based on current prices.

"I think there is concern ... if (lenders) put too much pressure on the E&Ps, we could see a wave of bankruptcies, and no bank wants to take over operatorship of these assets at $50 oil," Oppenheimer analyst Robert DuBoff said.

Companies such as SM Energy Co and Oasis Petroleum Inc have reported a net reduction of $425 million in credit, according to a Reuters analysis based on public disclosures.

Of the 31 companies that have disclosed information on loan resets so far, banks have cut credit lines of 10 firms by just over $1.15 billion and raised them for six companies by about $725 million.

Shale companies are also pushing lenders to package credit lines in their favor.

For example, while lenders last week cut Oasis Petroleum's credit line, the company is seeking relief by inserting a provision that will allow it to borrow as much as possible under the current facility.   Continued...