Money Talks: UMB Bank on Impacts of Upstream Consolidation

Hart Energy queried banks across the U.S. oil and gas investment space to analyze the lending environment amid uncertain times. This exclusive interview with Zachary Leard, vice president/energy group, UMB Bank, is the second in a four-part series with Oil and Gas Investor. 

Deon Daugherty, editor-in-chief, Oil and Gas Investor: What are your goals for working with the oil and gas industry during the next 12-18 months? What factors will influence your engagement?

Zachary Leard, vice president/energy group, UMB Bank: We are well-positioned to continue serving our clients and growing in the oil and gas industry. Our goal is to provide capital to our clients and tailor solutions to meet their unique needs, scale their businesses and return capital to their shareholders—as we have through all economic cycles.

DD: To what extent might macro uncertainty (policy changes, geopolitical upheaval, tariffs, OPEC, war) impact lending and spending in the upstream space? How does uncertainty factor into your decisions about which sector to engage?

ZL: While it certainly is a consideration in spending, we, as lenders, have guardrails in place to ensure we can continue to support our customers in any economic environment. We’re always going to look for things like a strong credit profile and good hedge positions from our clients, no matter what’s happening in the economy.

DD: How has consolidation impacted competition 1) for E&Ps seeking capital and 2) for their lending partners at investment/commercial banks?

ZL: As more and more private companies are consolidated, those management teams are then on the hunt for new equity capital for their next venture. That can create some competition between teams looking for capital to start new businesses. On the lending side, despite losing a lot of our upstream customers to consolidation, we view the consolidation as a great way to continue supporting management teams through multiple ventures, and it gives us the capacity to find new teams to work within the industry.

DD: How do you view consolidation taking shape within the upstream and midstream spaces going forward? Has the asset market opened up sufficiently, and how do you expect it to perform in the short- to mid-term?

ZL: In the past six months, we have seen more deals in our middle market space, but I wouldn’t say the market has opened up. It feels like we are nearing the end of this most recent consolidation cycle.

DD: Is the upstream space appropriately funded? For several years, much of the sentiment said the space was underinvested in terms of producing enough supply for future demand. Has that changed, and if so, how?

ZL: Depending on your perspective, some agree that the upstream sector is underinvested, driven by a shift in some institutional capital moving out of the industry combined with global banks moving away from lending to the space. This space requires large capital commitments, but if the transactions are properly underwritten with appropriate risk-return profiles, the capital is generally available. We believe plenty of energy banks in the market now can support the needs of upstream businesses with a traditional business model.

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