Small oil-and-gas companies are getting the cold shoulder from big banks

NEW YORK — The largest banking lenders to the oil and gas sector are becoming more cautious, marking down their expectations for oil and gas prices that underpin loans in a move expected to put further financial stress on struggling producers, industry and banking sources said.

Those lenders have marked down the perceived value for both oil and natural gas for the coming five years, with the changes kicking in as early as this month. That is a threat to smaller companies, which are already struggling to find other methods of financing — such as issuing stock or bonds — as investors grow restless with years of poor returns in the shale sector even as the United States has risen to become the world’s largest oil and gas producer.

“I expect the biggest issues to be with over-leveraged natural gas producers, especially those without firm transportation in geographically-disadvantaged areas,” said Brock Hudson, managing director at investment bank Carl Marks Advisors, who referenced companies in Appalachia, the Rockies and parts of Oklahoma.

REDUCED AVAILABILITYEight sources indicated larger banks have set their price decks, the industry term for the value they will ascribe to hydrocarbons behind the RBLs, with oil between US$46 and US$51 per barrel for the next five years. Those facing lower loan guarantees also can not rely on selling unwanted assets to raise cash as mergers and acquisitions activity is at its lowest level in a decade. Profiting from further production is also difficult, as the number of active oil and gas rigs is at its lowest level since April 2017, according to Baker Hughes.

Big banks protected by The Bank Act but who refuse to lend money to junior oil and gas companies even on terms totally favourable to the banks. cdnpoli

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