A dip in shale production has some banks questioning their investments in the industry.
The Wall Street Journal reports banks are tightening their requirements for revolving lines of credit as they revise estimates on the value of shale reserves put up as collateral.
Capital One Financial Corp. and JPMorgan Chase are among those expected to decrease their loans to shale companies.
Smaller and midsized shale producers are taking the biggest hit as many of their wells aren’t producing as much as projected. Meanwhile, Chevron and Royal Dutch Shell PLC are expected to take big hits, $10 billion and $2 billion, respectively.
A group of industries surveyed say they expect banks to make a 10% cut in revolving lines of credit.
“Many investors have lost faith in the viability of shale drillers, as natural-gas prices stayed low and many companies broke promises on how much their wells would produce and when they would begin to turn a profit,” The Journal reports. These banks are questioning producers’ well predictions, which are starting to fall far short of reality.
“If shale wells, which produce rapidly early and then taper off, are declining faster than predicted, questions arise regarding how much they will ultimately produce,” the report states.
More than 30 oil companies went bankrupt this year, more than in 2018 and 2017. Exploration and production companies are saddled with more than $100 billion in debt, as energy companies accounted for more than 90% of corporate debt defaults in Q3.
Read the full report here.
