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Energy Reports: Producers to Eye More Debt; Hedging, Optimism Increase

April 8, 2021 Anna Butler

One hundred twenty-four executives responded to Haynes and Boone’s semi-annual call for insight into borrowing bases, indicating a slight shift away from the pessimism of last fall and a pivot towards differing capital sources. 

Oil and gas producers, oilfield service companies, financial institutions, private equity firms and professional services firms were represented in the survey with the respondent makeup including 36% O&G producers – borrowers; 35% O&G lenders; 23% professional services firms; 4% other; and 2% oilfield services companies. Respondents were surveyed from March through early April.

In a nod of mild optimism, the majority of executives expect borrowing bases to either not change or to increase by 10%. That’s in contrast to survey takers this past fall looking to 10% to 20% decreases in borrowing bases.

On the capital side, respondents predict that producers will turn to cash flow from operations (24%), debt from capital markets (14%), debt from banks (13%) and debt from alternative capital providers (12%). The most significant uptick among the figures tied to capital sources since last fall was in producers potentially seeking debt from capital markets. That figure grew by 7%. Monetization transactions as a capital source experienced the largest drop in the past six months from 15% to 8%. It should be noted that respondents could select more than one capital source, and Haynes and Boone collected 444 responses.

A continued push by reserve-based lenders requiring borrowers to protect against downside scenarios has also seen increased hedge volumes, according to Haynes and Boone. Hedging levels were already at historic volumes. Last fall, 80% of survey respondents reported to the firm that reserve-based credit facility borrowers had already hedged from 40% to 70% of anticipated production over the next 12 months.

In what will come as no surprise based on recent activity and trends involving federal leasing, respondents also specified that oil and gas plays in the Permian Basin (42%), Haynesville (20%) and Eagle Ford/Austin Chalk (15%) would see the most capital. Again, respondents could select more than one response with 276 collected.

While there is a renewed sense of optimism, 15 energy banks indicated in a separate survey from Haynes and Boone a conservative attitude even as commodity prices are expected to rebound potentially more for which the surveyed banks are allotting.

In the Energy Bank Price Deck, energy banks indicated that the borrowing base case for oil would not materially improve as institutions continue to be gun shy between bankruptcies and loan losses. The narrative tied to the gas base case isn’t much different as survey responses indicated that redeterminations for gas-weighted producers would be improved, though not “appreciably better.” 

You can find the full reports below: 

Borrowing Base Redeterminations Survey

Energy Bank Price Deck Survey

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