Haynes and Boone, LLP Borrowing Base Redeterminations Survey: Fall 2018

Transcription

1 , LLP Borrowing Base Redeterminations September 26, 2018

2 OBJECTIVE OF THE SURVEY Since April 2015,, LLP has conducted eight borrowing base redetermination surveys, including one most recently in September Survey respondents included executives at: Oil and gas producers Oilfield services companies Financial institutions Private equity firms Professional services providers The primary objective was to get a forward-looking and clear idea of what lenders, borrowers (oil and gas producers) and others are experiencing regarding borrowing base redeterminations in light of the price uncertainty in the commodity markets. The following is a summary of the September 2018 survey results and an analysis of the responses. 2

3 Question 1: Which of these best describes you? % % OF RESPONDENTS % 20% 10 3% 5% 0 O&G lender O&G producer - borrower Professional services provider Oilfield services Other 123 respondents 3

4 Question 2: What percentage do you expect borrowing bases to change in fall 2018 as compared to spring 2018? 60 Overall responses 50 Lender responses Borrower responses NO. OF RESPONDENTS % or greater decrease 30% or greater decrease 20% decrease 10% decrease No change 10% increase 20% increase 30% or greater increase 40% or greater increase More than 78 percent of the respondents expect borrowers to see a borrowing base increase in fall

5 Question 3: On average, what percentage of anticipated future production have reserve-based credit facility borrowers hedged for the next 12 months? Overall responses Lender responses Borrower responses NO. OF RESPONDENTS % 20% 30% 40% 50% 60% 70% 80% 90% or greater Two-thirds of respondents indicate that borrowers have locked in prices for the majority of their 2019 production. 5

6 Question 4: Where are producers planning to source capital from in 2019?* Other Equity from Capital Markets 1% Debt from Capital Markets Joint Ventures with Private Equity Firms (farmouts, drillco s, etc.) 13% 8% 12% Debt from Banks $ 20% 21% Cash Flow from Operations 8% 17% Debt from Private Equity Firms Equity from Private Equity Firms *Respondents could select more than one option. We collected 459 responses. The figures in the chart above indicate the percent of total responses for each option. 6

7 Question 5: What is the greatest challenge that oil and gas producers will face in 2019? Other Trade war tensions Cost of capital 9% 7% 6% Midstream capacity constraints 42% Commodity price volatility 17% 19% Rising costs of oilfield services Midstream capacity constraint is by far the biggest concern of respondents, outranking concerns relating to services costs and commodity price volatility. 7

8 KEY TAKEAWAYS Respondents have a positive outlook about fall 2018 borrowing bases over 78 percent expect borrowing bases to increase, with 36 percent expecting 20 percent or greater increases. Strong oil prices are leading borrowers to roll forward their hedging. The respondents estimate that producers have a significant percentage 50 to 60 percent of their 2019 production hedged. Fall 2018 expectations regarding capital sources were almost identical to our spring 2018 survey results. Producers continue to favor cash flow from operations, bank debt and private equity as their primary sources of capital. Oil and gas producers biggest concern in 2019, by a significant margin, is midstream capacity. Survey: Spring Fall

9 PRIMARY CONTACTS BUDDY CLARK BILL NELSON KRAIG GRAHMANN KRISTINA TRAUGER M. SCOTT HELBING Partner, Dallas JOSEPH VILARDO NEAL KAMINSKY LAURA MARTONE Counsel, Orange County JEFF NICHOLS AUSTIN ELAM Associate, Houston

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11 This publication is for informational purposes only and is not intended to be legal advice and does not establish an attorney-client relationship. Legal advice of any nature should be sought from legal counsel.