David Fuller's view -
Halcon Resources Corp. almost ran into trouble with its banks in June 2013. And again in March 2014. And in February 2015.
Each time, the shale driller came close to violating debt limits set by its lenders, endangering a credit line that provided as much as $1.05 billion in much-needed cash. Each time, Halcon’s banks, led by JPMorgan Chase & Co. and Wells Fargo & Co., loosened their restrictions, allowing Halcon to keep borrowing.
That kind of patience may be coming to an end. Bank regulators have issued warnings on the risks involved in lending to U.S. drillers, threatening a cash crunch in an industry that’s more dependent than ever on other people’s money. Wall Street has been one of the biggest allies of the shale revolution, bankrolling thousands of wells from Texas to North Dakota. The question is how that will change with oil prices down by half since last year to $50.36 a barrel.
“Lenders in general are increasing pressure on oil companies either to raise more equity or do some sort of transaction to pay down their credit lines and free up extra cash,” said Jimmy Vallee, a partner in the Energy mergers and acquisitions practice at law firm Paul Hastings LLP in Houston.
The benefits of lower oil prices, while significant, are spread thinly throughout economies. In contrast, the problems for producers of oil and gas at lower prices are considerable and therefore highly visible. This can have a knock-on negative effect, affecting banks with loans to the Energy sector, the number of people employed in the oil and gas industries, tax revenues from these sectors, and economic slumps in previously booming oil towns.
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