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Julianne Geiger

Julianne Geiger

Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.

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U.S. Shale Scrambles For Credit With Oil At $40

U.S. oil and gas companies are scrambling for credit, with lenders tightening their purse strings as oil prices continue to sit below $40 per barrel.

Oil and gas lenders have restricted the borrowing abilities for oil and gas companies to the tune of 20% so far this spring lending season, according to a Reuters analysis.

It’s supposed to be a negotiation between the companies and the lenders. Available credit is, twice each year, reassessed, based on the value of a companies’ reserves.  Well, those valuations are off substantially this year thanks to low oil prices, which have fallen by more than a third since the start of the year as the pandemic triggered lockdowns across the globe.

Low prices were brought even lower by the price war between Russia and Saudi Arabia, after the two had a falling out in March over whether the production cuts should be extended or expanded, or neither.

But it’s more than just the direct impact that low prices have on U.S. drillers’ profit margins—it’s the fact that these prices are used to determine how much money a company can borrow.

So far in the spring season of borrowing, a Reuters analysis determined, the total borrowing base for nearly 40 North American oil companies has been cut by $7.5 billion.

Some of the heaviest cuts were to the borrowing base of Denver-based Antero Resources, who saw a $1.65 billion cut, Houston-based Callon Petroleum who saw an $800 million cut, and Houston-based Oasis Petroleum who saw a $700 million cut.

And of the credit that was available to oil and gas companies, much of it has already been utilized, Reuters suggests, leaving precious little left to keep going—a necessity unless oil prices recover quickly.

By Julianne Geiger for Oilprice.com

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