Survey Predicts Shale Drillers Will Borrow & Spend More in 2017
Lately we've noticed a plethora of stories in mainstream media about the oil and gas industry spending more money this year. That certainly seems to jibe with our own anecdotal observations. In reporting 2016 results and drillers' comments about what to expect in 2017, almost all of the companies we've reported on have said their spending this year will go up. And that's a good thing. We now have something better than just anecdotal evidence. Energy law firm Haynes and Boone recently completed a survey of oil and gas borrowers and lenders--drillers, service companies, and banks--to gauge their predictions about "borrowing base redeterminations" and spending in 2017. What is a borrowing base? A company’s borrowing base is the value of its assets. In the case of drillers, it is the value of the leases and oil/gas wells they own. Those assets are used as collateral to back up loans and IOUs. A lower borrowing base means they must borrow less money, and they will pay more in interest for the money they do borrow. Lower borrowing base = bad, higher borrowing base = good. Each spring and fall (twice a year) banks take a look and "redetermine" or reevaluate the value of those assets. What did the Haynes and Boone survey find about bankers' and drillers' predictions on spring redeterminations of borrowing bases? That the borrowing base for most drillers will either stay the same, or increase slightly. The survey also found a vast majority of drillers plan to spend more money this year (89%). Here's the encouraging results...
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