American Oil and Gas Reporter - September 2015 - 53

SpecialReport: Financial Performance
In For The Long Haul
"We have been oil and gas lenders since
1910," says Mickey Coats, executive vice
president and manager of energy banking
at BOK Financial Group in Tulsa. "We
were founded by oil and gas people, and
always have been able to stay active in the
industry, thanks to the policies we have adhered to. But there is no policy remedy to
a 50 or 60 percent drop in the price of the
commodity. At that point, as a banker, you
just have to rely on the belief that you have
underwritten your portfolio to withstand
such a situation."

overs from their previous development
plans," he observes. "It takes time to wind
things down, even when you are moving
with urgency."
He explains, "Most of our customers
were about 50 percent borrowed on their
credit facilities. When the price of oil
dropped dramatically, they suddenly were
right on top of their available borrowing
bases. Banks have been working with
everyone to get them through to the next
borrowing base review in the fall."
"Fall" may be literal at that point, Coats
continues. "If some producers don't get

"As long as we see a production loan that shows promise and
that the company has good liquidity, we are making new
loans. Our doors are not shut."
MICKEY COATS
Coats says BOK has $5.9 billion in commitments to the energy sector, of which $3.9
billion is outstanding. Almost 80 percent of
that is upstream. The balance is midstream, with a bit of services. There are 10
engineers on staff at offices in Oklahoma
City, Houston, Denver, Dallas, and Tulsa.
So far, Coats remarks, BOK and most
lenders highly active in the independent
sector say they have been able to withstand
the downturn. Most assert they are in for
the long haul. "Energy represents about 20
percent of our loans," says Coats. "We
have always been in energy and will
continue to be."
Adding emphasis, Coats reiterates,
"As long as we see a production loan that
shows promise and the company has
good liquidity, we are making new loans.
Our doors are not shut."
That determination is a reflection not
only of the long relationship lenders have
with their producer customers, but also a
realization by the banks that they are not
the only game in town, Coats acknowledges. "There is a lot of money chasing
distressed energy," he allows. "There is
private capital for second liens and for
mezzanine structures."
That is a notable change from the 2008
downturn, when the recession was brought
about by a crisis in the credit markets and
no one was lending. "We are seeing a very
different environment now," Coats says.
Following the spring redetermination
season, Coats says he anticipated producers would make adjustments through the
summer. "Many companies still had hang-

help from prices or their valuations, there
may be cases where banks will require
payments and force some action," he
warns, but adds that he does not anticipate
a broad cull, in part because many producers have private equity behind them.
"I expect the bulk of the companies in
our portfolio will be able to do fine," Coats
assures.

He says Amegy Bank is a major energy lender focused on three basins: the
Marcellus, the Eagle Ford, and the Permian/Delaware. It also is active in the midstream.
Given the size and scope of Amegy's
presence in the independent sector,
Kennedy offers a broad perspective on the
state of the industry. "There are basically two categories of companies," he ventures. "There are those with acceptable balance sheets-the ones that have issued some
equity and are in a pretty good position.
They have solved their problems, assuming the oil market stabilizes at least in the
$60s by the end of the year."
The others, he continues, "mostly have
wanted to buy some time, making use of
second lien and other subordinated debt
structures. They are trying to work their
business plans to convert low-hanging
fruit-adding reserves through low-risk development drilling and workovers. Then,
they plan to access the equity market to
take out excess leverage."
Kennedy gives kudos to operators who
acted quickly when the price of oil started to fall. "Many of our customers found
solutions even before they had fully analyzed the scope of the situation, and well
before they came in for their spring redeterminations," he recounts. "They made

"People are borrowing for two reasons. Either they are seeking
to make acquisitions at good prices and consolidating
properties or operations, or they are trying to maximize their
production by funding workovers."
STEVE KENNEDY
High Impact Projects
Amegy Bank in Houston is hopeful that
a stabilized price recovery will be evident
by the fourth quarter, says Steve Kennedy,
executive vice president and manager of
energy lending. "You probably can find
broad agreement on that, but there is some
anxiety still, and some price volatility," he
comments. "As we came to midyear,
supply and demand were in better balance.
We are expecting a recovery; we just don't
know exactly when."
Kennedy reckons that "by fall, many of
the issues producers are grappling with will
either be fixed, or they at least will have
bought themselves some time-maybe 18
months-to see how they can execute on their
programs. The focus definitely is on lowcapital-expenditure, high-impact projects."

arrangements to bring in equity, and to adjust their costs and programs."
In that sense, he says, there was a small
silver lining to the timing of the oil price
decline in that it started at the end of the
fall redetermination season-well ahead of
the spring redeterminations. That gave producers as much time as possible to make
adjustments and to work with their lenders
and investors.
Producers can be thankful for that
small grace, Kennedy suggests, because
they did not have many other factors break
their way. "In the downturn of 2009, many
producers were able to pivot to oil," he recalls. "This time, there was nothing to pivot to. Companies just had to pare down to
only core acreage with the lowest costs and
the highest returns."
SEPTEMBER 2015 53

American Oil and Gas Reporter - September 2015

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