Reuters: U.S. banks prepare to seize energy assets as shale boom goes bust

April 9, 2020April 20th, 2020
Share
Print Friendly, PDF & Email

AEGIS View: Banks, long thought to avoid owning producing assets, are planning for taking control. 

“Major U.S. lenders are preparing to become operators of oil and gas fields across the country for the first time in a generation to avoid losses on loans to energy companies... .”

Reuters, 4/9/2020

Article Summary

  • Reuters says lenders to oil and gas companies are taking steps to be the operators of oil- or gas-producing assets held as collateral
  • Banks are establishing separate entities to own oil and gas assets
  • JPMorgan, Wells Fargo, and Bank of America were each named

AEGIS View

We’ve heard it said “They’ll reorganize and emerge from bankruptcy. After all, the bank doesn’t want to own the asset.” But maybe that’s not true.

A lender’s calculus behind whether to seize collateral is likely a balance between (1) If the debt is restructured, will it be repaid, and (2) Is the asset better owned by us? In some situations, banks may be reaching the conclusion that the better “bad” choice is to operate the asset themselves.

There are some possible oil and gas market implications. First, it seems unlikely that banks would be willing to invest growth capital. Maintenance capital? Yes, to keep the producing wells performing. But additional development dollars would be withheld. This means that for the seized assets, we should expect them to decline and not add new supply to the market.

Second, it sounds like a temporary fix. As prices move higher and risk capital returns to the industry, banks would likely be looking for a buyer of the producing assets and the PUDs that come with it.

Last, if the phenomenon of bank-owned producing assets becomes widespread, it may become an interesting price-discovery mechanism. The industry may be looking to these deals as gauges of the health of M&A in the post-Covid-19 world.

We continue to monitor oil, gas, NGLs, and regional markets for hedging opportunities. To learn more and see AEGIS opinion and recommendations, go to AEGIS View publications, or contact [email protected]. Like what you see? Share this article with the button on the bottom right of your desktop. Market questions or comments? Contact us at [email protected]

NOTICE: The content of this report is provided for information purposes only and has been prepared to describe current trends in the commodities markets. This information does not constitute either investment or hedging advice and is intended only for AEGIS clients. If you are not the intended recipient of this report, then you may not disclose, print, copy or disseminate this information. Otherwise, if you have received this transmission in error, then please notify the sender and delete the report.

Access Our Deeper Market Insights

Product Factor Matrix

Proprietary view of priced-in factors driving the market vs. potential bullish and bearish surprises.

Learn More

Trading Recommendations

Clear trading recommendations based on real market opportunities that enable clients to take action.

Learn More

Market Data

A comprehensive suite of the latest curves, spot pricing, settles, and strips to drive confident hedging decisions.

Learn More

Benchmarking and Trade Analytics

Real-time access to analyze your hedging strategy against AEGIS benchmarks and current market activity.

Learn More