(Fixes spelling of Jon in paragraph 15)
* Boards seeking ways to bridge funding gaps
* Asset sales, stock issuance, new investors considered
* Graphic: Oil companies debt vs oil price http://link.reuters.com/quh65w
By Ron Bousso
LONDON, Sept 17 (Reuters) - Small and medium-sized oil
companies, squeezed by the oil price slump, may have to raise
expensive new finance, sell assets or seek new investors to plug
any funding gaps as banks tighten up on lending.
Many of these companies have already cut spending and axed
thousands of jobs following a more than halving in the oil price
to around $50 a barrel since June last year. ID:nL5N11A2TP
But they may need to do more as revenues fall and the oil
price looks set to stay low. Oil's fall last month to its lowest
since early 2009 at just above $40 a barrel has dashed hopes in
the oil industry for a swift recovery.
In many cases, banks lend money based on a company's oil and
gas reserves base, in what is known as reserve-based lending,
so, in theory, the lower the oil price outlook, the smaller the
loan or credit line.
"Banks will be broadly supportive but for some riskier
clients and transactions, there may be a gap in financing that
didn't exist before and they will have to find alternative
financing," one banker, who heads a loan syndicate, said.
"There is concern that banks will redenominate and reduce
existing financing for energy companies. Banks are looking at
this now, it's a live issue."
The companies and their banks sit down twice a year to
review finances, which used to be a fairly routine conversation
when oil was riding high. Most companies emerged from the April
round of talks, known as "redeterminations" relatively unscathed
because of expectations of an oil price recovery.
The current round may be more difficult as banks will have
cut their long-term oil price forecasts, according to several
bankers and consultants. O/POLL
"Managements and boards have had to come to terms in recent
weeks with the 'lower for longer' oil price view," Rupert
Newall, head of EMEA energy investment banking at BMO Capital
Markets, said.
Exploration and production companies with large project
financing needs include Africa-focused Tullow Oil TLW.L , North
Sea producers Lundin Petroleum LUPE.ST and Ithaca Energy
IAE.TO , according to bankers and analysts.
Nomura has estimated Tullow Oil's net debt will rise to $4.7
billion by the second half of 2016, when its TEN project off
Ghana's coast is planned to start production.
Tullow's net debt at the end of the first half of 2015 was
$3.6 billion.
Tullow and Ithaca declined to comment. Lundin did not
immediately respond to requests for comment.
In the United States, where some oil companies borrowed
heavily to invest in shale, several have run into trouble this
year, including Oklahoma-based Samson Resources. ID:nL3N10P61M
But Jon Clark, a transaction advisory consultant at EY, said
the chances were low of similar problems in Europe.
There have been a few casualties. Oil producer Afren
AFRE.L , for example, decided to go into administration in July
when it failed to win support for a refinancing plan.
ID:nL3N10B5V8
Credit rating agency Standard & Poor's on Thursday cut its
long-term corporate credit rating on British oilfield services
company Expro Holdings Ltd to CCC+ from B-, citing its high
leverage and the challenging market conditions in oil and gas.
BUYERS MARKET
The oil price is just one element that goes into the mix for
the banks. Other factors such as a project's break even and its
expected start date can significantly influence the size and
terms of a loan. Also, hedging programmes undertaken by most
companies can soften the impact of falling oil prices.
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Graphic: European oil and gas companies' net debt to EBITDA
http://link.reuters.com/quh65w
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In terms of raising cash via asset sales, companies have been
reluctant to sell because price tags slumped along with oil,
while buyers have been holding back for even lower prices.
But financing needs may push some to turn sellers.
"We are starting to see some instances where banks are being
put in a fairly difficult position of either following their
money, finding an alternative capital source or calling time on
companies. That is going to drive some transactions in the
market," Clark said, referring to asset sales.
Private equity funds such as Carlyle Group CG.O , KKR
KKR.N and Riverstone RSER.L have raised billions of dollars
to invest in the energy sector. ID:nL5N0Y4549 ID:nL6N0WS40G
"Some companies have used up the good will over
renegotiating their covenants or needing various wavers signed
around existing (loan) facilities, and have rationalised their
capital programmes as best they can," Emma Wild, KPMG Head of
Upstream Advisory Practice, said.
"The need to pay down debt and close funding gaps may result
in a few bargains that those with capital have been holding out
for," she said.