The weakest oil and gas companies are facing heightened liquidity pressure after bank lenders cut their exposure amid low commodity prices, Bloomberg News reported. Most high-yield borrowers saw their reserve-based loans cut after their spring redetermination, according to a new report from S&P Global Ratings. Borrowing bases, which are determined by the collateral value of oil and gas reserves, were cut by an average of 23 percent. Credit commitments were cut by 15 percent on average, the ratings company said. “This redetermination cycle has been more prolonged and less forgiving than previous cycles, with a number of the most distressed E&Ps still working through the process,” S&P analysts Paul O’Donnell and Carin Dehne-Kiley wrote in the report. S&P looked at 34 companies that have announced the results of their bank redetermination. A reduction in borrowing capacity for high-yield energy companies comes at a time when they most need access to liquidity. Oil and gas prices fell to historic lows as the coronavirus pandemic slashed demand, and Saudi Arabia and Russia competed for market share. Capital markets have remained closed to most energy borrowers, sending the weakest companies into bankruptcy. The average drawn balance on high-yield producer credit facilities is now more than 50 percent, with about a third of producers drawn at more than 70 percent of elected commitments, according to S&P.
