Wall Street lenders falling out of love with US shale
Halcon Resources 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 $1.05bn in cash. Each time, Halcon's banks, led by JPMorgan and Wells Fargo, 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 US drillers, threatening an industry dependent 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 about $50 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 at law firm Paul Hastings LLP in Houston.
Banks are already preparing for the next re-evaluation of oil and gas credit lines, reviews which typically take place twice a year in April and October.
Their loans are based on the value of drillers' producing reserves, which has shrunk as oil prices fell. Many companies are also losing protection as hedges that locked in prices as high as $90 a barrel expire.
Banks so far have been willing to keep money flowing because drillers that come close to maxing out credit lines have paid them off by tapping public markets, including about $44bn of shares and bonds and share sales in the first half of this year.