It’s hard to be effusive about energy if you’re in commercial banking and—as has happened in the first half of the year—the economic terrain faces consistent headwinds. Public capital markets have been largely closed for energy, and easy exits have disappeared for private-equity-backed portfolio companies. Uncertainty hangs in the air, and the flow of transactions for banks to fund is down markedly.
Of course, existing lending commitments by bank syndicates continue in place with producers. Many of these were renegotiated and extended in the last couple of years, and so they’re not facing a “maturity wall” in the loan market, said one banking source. But twice-yearly borrowing base redeterminations are based on volumes and price, as is the norm, and the spring redetermination season saw a slump in most natural gas prices.
There are some bright spots in terms of new lending opportunities. A couple of E&Ps have launched IPOs, spinning off assets in the midstream and mineral sectors. Moves to monetize midstream assets have included water infrastructure, helping highlight an underappreciated asset or, in some cases, offering an alternative way to shed noncore E&P assets in a weak A&D market.