New Lender Worry: Oil Firms Max Out Credit Lines — Energy Journal

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DRAWDOWNS RAISE CONCERNS ABOUT BANKS’ ENERGY EXPOSURE

A SandRidge Energy oil pump jack near Anthony, Kan. in 2013.
Orlin Wagner/Associated Press

Struggling oil and gas companies are maxing out revolving credit lines typically used to cover short-term funding gaps, raising fresh concerns about banks’ exposure to the decline in energy prices, Matt Jarzemsky reports. Midstates Petroleum Co., Linn Energy LLC and SandRidge Energy Inc. recently drew down the full balance of their revolving credit lines.

Drawing down fully on a revolving loan can signal a company is building up its cash reserves ahead of a bankruptcy filing or that it is worried lenders may at some point cut off access to credit. The shift represents another piece of bad news for bank stocks, which have been hammered lately on a number of worries, including the level of loan portfolio exposure to the energy sector.

MORE CUTS LOOM AS OIL NEARS $25

Many oil companies have little choice but to start making the steep cost cuts they have avoided until now as crude oil prices slide toward $25 a barrel, Erin Ailworth and Bradley Olson report. This means jettisoning every well that can’t break even or isn’t needed to keep the lights on. U.S. and Canadian producers are losing at least $350 million a day at current prices, and some Canadian companies are warning they may be forced to shut down older oil-sands sites if prices fall further.

“For the month of January we did not make any money on our oil sands,” said Brian Ferguson, chief executive of Canadian producer Cenovus Energy Inc.

TOTAL PLANS MORE CUTS AMID LOSS

French oil giant Total SA said it would cut billions more in spending as it reported a $1.63 billion fourth-quarter loss due to low oil prices, Inti Landauro reports. Total said it would cut capital spending to around $19 billion in 2016, lower than previously expected and down from $23 billion last year. The company also said it would cut its operating costs by $2.4 billion this year by squeezing contractors and cutting spending at all levels.

Still, Total’s loss was smaller than the $5.66 billion loss posted a year earlier, which resulted from a huge $6.5 billion write-down on oil-producing assets made unprofitable by the oil price collapse.

The hefty supplies of crude at the Cushing, Okla., delivery point for the U.S. West Texas Intermediate oil-futures contract are helping to crush prices, Spencer Jakab writes.

Separately, Friday is BG Group PLC’s last trading day as Royal Dutch Shell PLC’s $50 billion takeover is expected to be completed Monday, Selina Williams writes. Shell cancelled a $14.4 billion bridge credit facility to pay for the acquisition because it is now able to fund the deal from its own cash resources, MarketWatch reports.

MARKETS

Oil prices rallied on Friday, rebounding from a 13-year low the previous day, on speculation of production cuts among some of the world’s biggest suppliers.

Brent crude, the global oil benchmark, rose 5.4% to $31.67 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 5.3% at $27.60 a barrel. WTI fell to $26.21 a barrel on Thursday, the lowest settlement since May 6, 2003. Both benchmarks are still down for the week, with Brent on track for a 7% loss and WTI down around 10%. Read our latest market report at wsj.com.

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