By Amrutha Gayathri
Oct 13 (Reuters) - U.S. shale oil and gas producers have
seen smaller-than-expected cuts to their credit lines, a sign
that banks could be relaxing their lending standards to help
companies avoid technical defaults.
Companies that hold nearly a third of the energy industry's
$100 billion or so in reserve-based loans - borrowed against
their oil and gas reserves - have reported a 1.4 percent net
drop in credit lines.
Most analysts were expecting at least a 10 percent cut to
credit lines after the bi-annual process of revising oil and gas
reserve valuations based on current prices.
"I think there is concern ... if (lenders) put too much
pressure on the E&Ps, we could see a wave of bankruptcies, and
no bank wants to take over operatorship of these assets at $50
oil," Oppenheimer analyst Robert DuBoff said.
Companies such as SM Energy Co SM.N and Oasis Petroleum
Inc OAS.N have reported a net reduction of $425 million in
credit, according to a Reuters analysis based on public
disclosures.
Of the 31 companies that have disclosed information on loan
resets so far, banks have cut credit lines of 10 firms by just
over $1.15 billion and raised them for six companies by about
$725 million.
Shale companies are also pushing lenders to package credit
lines in their favor.
For example, while lenders last week cut Oasis Petroleum's
credit line, the company is seeking relief by inserting a
provision that will allow it to borrow as much as possible under
the current facility.
"It's a good example of how bonds and some covenant packages
have progressively grown looser over the years," said Anthony
Canale, who heads high-yield research at Covenant Review, a
research firm focused on debt covenants.
Meanwhile, companies such as Halcon Resources Corp HK.N
and Midstates Petroleum Co MPO.N are trying to swap their
unsecured debt for new secured loans.
"We are seeing more exotic financing transactions ...
notably the swapping of unsecured notes for second-lien and
third-lien secured indebtedness," said Jimmy Vallee, a partner
at law firm Paul Hastings LLP.
SECURING CREDIT
The relatively few lending cuts also underscore the steps
taken by energy companies to keep their credit lines secure.
The decision by many of these firms to snap up hedges in
June during a brief price rally has made lending to them far
less risky, while a sale of non-core assets and deep cuts to
costs have reassured lenders.
Also, after nearly a decade of uninterrupted growth, the
energy sector may be short of workout bankers - who deal with
troubled loans and negotiate with borrowers - helping energy
companies hold on to their loans longer, said Robert Gray, a
partner at law firm Mayer Brown LLP.
"They all left, so it's partially a management issue."
Several companies have been able to hold their oil and gas
reserves steady because they are mostly completing existing
wells rather than drilling new ones.