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U.S. Oil Producers Ready To Self-Finance

A fifth of U.S. crude oil producers are planning to use their cash flow from operations to fund new production expansion, a survey from Haynes & Boone has found. Besides cash from operations, producers will be using bank debt and private equity financing this year, the survey revealed, signaling continued improvement in the industry.

In further good news for the industry, more than 80 percent of respondents in the survey said they expected borrowing bases this year to rise, which means the value of borrowers’ assets used as collateral when taking out loans will be higher. Still, the increase will not be major, at between 10 and 20 percent, Haynes & Boone noted.

This is the most optimistic sentiment among oil producers since Haynes & Boone began making the bi-annual surveys in 2015. Interestingly enough, the focus of this optimism is not the Permian. In fact, survey respondents believed the next hot spots in U.S. oil will be Eagle Ford and the Austin Chalk in Louisiana, as well as Niobrara and the Powder River Basin in Wyoming.

Meanwhile, E&Ps are locking in higher oil prices. The law firm estimates that between 50 and 60 percent of their 2018 oil production has already been hedged. This means producers have insulated themselves—at least to a certain degree—from any sharp downward price moves that might come later this year. This is at the moment unlikely as Brent just hit US$72 a barrel on geopolitical worries centering on Syria.

Related: Why Is U.S. Oil So Cheap?

Bankruptcies are becoming less frequent, too, the survey found. Commenting on the findings in this respect, Haynes & Boone’s Energy Practice Co-Chair Buddy Clark said, “The number of E&P bankruptcy filings has continued to drop off as most financially distressed producers have restructured their debt, either through the bankruptcy process or outside of bankruptcy.”

Yet, he added, “the magnitude of some recent producer filings show that the increase in oil prices since 2016 has not been enough for some larger independents to pull out of the financial death spiral caused by the oil price collapse that started in late 2014.”

By Irina Slav for Oilprice.com

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