A trade article – based on multiple sources – suggests bank lenders to U.S. oil & gas exploration and production companies are about to tighten advances against reserves. Reportedly, these asset-based lenders are concerned about 2020 oil prices and are pro-actively seeking to manage potential credit risk.
One does not have to be an energy expert to recognize that more conservative secured senior lending to E&P borrowers could have a deleterious effect on the companies liquidity; cost of capital and business prospects.
In our still incomplete database we count at least 17 BDC portfolio companies in the E&P space which might be directly affected if the new approach is widely adopted. There could be an indirect impact as well on oil services company of every stripe if the E&P sector has less capital available going forward. See our earlier post about risks in the oil field services sector on September 6, 2019.