Banks extending credit to oil companies

Banks are extending more credit to oil companies as crude prices recover from the pandemic-driven oil bust of 2020.

Ranger Oil Corp. on Thursday said its revolving credit limit increased 20 percent to $725 million as the Houston company outlined plans for “significant cash on cash returns” and “disciplined growth.”

“This increase continues to strengthen our balance sheet, creates financial flexibility for consolidation and other opportunities, and enhances the potential liquidity available to the company,” Ranger CEO Darrin Henke said in a statement.

Banks, which slashed credit lines and pulled back energy investments during the pandemic, are starting to extend financing back to oil companies as producers pledge to maintain discipline after years of unfettered spending and growth. A recent survey by the Dallas-based law firm Haynes and Boone found that more than 60 percent of lenders expect to increase the borrowing base of energy companies by at least 10 percent and as much as 20 percent.

The increased borrowing capacity is good news for the beleaguered shale sector, which requires a constant flow of money to drill new wells to replenish rapidly declining oil reserves.

Banks appear to be willing to lend more to oil companies as crude prices have rebounded to around $80 a barrel from negative-$37 a barrel in April 2020. West Texas Intermediate, the U.S. crude benchmark, settled Thursday at 79.46 a barrel, up $1.61 or about 2 percent.

Minneapolis-based Northern Oil and Gas in November said its credit limit was increased to $850 million from $725 million, and Oklahoma City-based PHX Minerals in December said its credit limit was increased to $32 million from $27.5 million. A Fort Worth company, HighPeak Energy, said last fall that its borrowing base was raised to $195 million from $125 million.

The Haynes and Boone survey, published in October, found that nearly two-thirds of 84 oil companies surveyed expect more capital to flow into the energy sector in 2022.

“Producers are expected to use cash flow from operations and accessing bank debt as their primary sources of capital in 2021,” Haynes and Boone said. “The most notable change in market sentiment is a slight increase in banks as a potential capital source and a slight decrease in alternative capital providers.”

Banks reassess oil companies’ borrowing capacity twice a year, taking into account crude prices, market forecasts and production projections.

Wall Street firms have been divesting energy stocks and pulling investment from the sector after recent oil busts. Banks sold off loans and cut credit lines to oil and gas companies to reduce their risk of defaults after the 2020 oil crash. Several oil companies, such as Houston-based Bruin E&P Partners, said they were forced to file for bankruptcy during the pandemic after lenders pulled credit lines as crude prices plunged and revenue dried up.

Capital could remain constrained, however, as public concerns grow over climate change. Vanguard, Blackrock and State Street — some of the largest oil investors with $22.3 billion invested in 30 major oil companies — have pledged to invest in net-zero emission companies. paul.takahashi@chron.com twitter.com/paultakahashi