Borrowing base reductions will strain liquidity

A just-released report by Moody’s Investors Service explores the impact of borrowing base reductions on E&P companies’ liquidity. Among the highlights:

  • Low oil and gas prices will weaken the liquidity of many lower-rated North American exploration and production companies after creditors redetermine their reserve-based lending (RBL) facilities’ borrowing bases in the current quarter.

  • Reduced borrowing bases will force some companies to seek to enhance liquidity either by finding alternate sources, improving margins, or limiting capital spending.

  • Moody’s anticipates that banks will lower their fall 2015 oil price decks by some 15%–25% from their spring 2015 assumptions, significantly reducing RBL borrowing bases for some E&P companies.

  • Thirty-eight percent (38%) of the Ba and B-rated E&Ps surveyed expect their borrowing bases to decline in the fall, while only 17% expect an increase.

  • Hedges on oil and natural gas prices, which insulated many producers from declining oil prices in the second half of 2014 and in 2015, will provide less benefit in 2016.

  • More than two-thirds of the Ba- and B-rated E&P companies have at least some crude oil hedges in place today, covering 45% of 2016 oil production with an average price near $70/bbl.

  • Most E&P companies will keep their capital spending flat or reduce it further to preserve liquidity and stay within their cash flow.

  • E&P companies reduced capital spending by around 20% sequentially in the first and second quarters of 2015.

  • Complying with financial covenants will remain a challenge for several E&P companies.

  • Many companies amended their credit agreements in 2015 to relax existing financial covenants, or to substitute different test metrics for an interim period.


Did You Like this Article? Get All the Energy Industry News Delivered to Your Inbox

Subscribe to an email newsletter today at no cost and receive the latest news and information.

 Subscribe Now


The Time is Right for Optimum Reliability: Capital-Intensive Industries and Asset Performance Management

Imagine a plant that is no longer at risk of a random shutdown. Imagine not worrying about losing...

Going Digital: The New Normal in Oil & Gas

In this whitepaper you will learn how Keystone Engineering, ONGC, and Saipem are using software t...

Maximizing Operational Excellence

In a recent survey conducted by PennEnergy Research, 70% of surveyed energy industry professional...

Leveraging the Power of Information in the Energy Industry

Information Governance is about more than compliance. It’s about using your information to drive ...