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Page added on April 26, 2016

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Bankers Trying to Sell Loans Backed by Oil Reserves

Business

Banks are trying to unload loans once thought to be the safest form of energy credit.

Debt backed by oil and gas reserves are being offered at discounts as increased scrutiny by regulators and investors has forced lenders to set aside more cash to cover losses, the law firm Haynes & Boone LLP said in a note to be delivered to clients Monday. Some banks that bought slices of syndicated loans may try to sell their entire portfolio, according to the note.

Reserves-based lending was long considered safe because banks historically got back every penny they lent, even after default, according to a 2013 Standard & Poor’s report. Moody’s Investors Service Inc. said in an April 7 report that lenders could lose 21 cents on the dollar on defaulted exploration and production loans, four times more than the historical average.

“The fact that these loans are selling at a discount was not part of the plan,” Buddy Clark, a partner at Haynes & Boone in Houston, said in an interview. “The RBLs don’t usually trade hands all that often. Back in the good days, the lead bank or agent bank would just buy the smaller lenders out at par. But now we have banks trying to get out at a loss.”

The four largest U.S. energy banks — Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. — have almost $190 billion in industry exposure, including funded loans and future commitments to lend, according to data compiled by Bloomberg from first-quarter results.

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45 Comments on "Bankers Trying to Sell Loans Backed by Oil Reserves"

  1. Cloud9 on Tue, 26th Apr 2016 6:39 am 

    I am sure my pension fund will load up on this stuff.

  2. makati1 on Tue, 26th Apr 2016 7:24 am 

    Cloud9, you are probably right. I hope you are not relying on it for your future.

  3. rockman on Tue, 26th Apr 2016 7:36 am 

    “Reserves-based lending was long considered safe because banks historically got back every penny they lent, even after default, according to a 2013 Standard & Poor’s report. Moody’s Investors Service Inc. said in an April 7 report that lenders could lose 21 cents on the dollar on defaulted exploration and production loans, four times more than the historical average.” Amazing: did they notice they just completely destroyed their credibility with that second statement following the first. IOW if historically lenders lost about 5 cents on the dollar on average on E&P loans how can they say lenders have historically gotten back “…every penny they lent”?

    Reserve base lending has never been considered safe by either the oil patch or the lenders. That is a FACT repeatedly demonstrated to the Rockman during his 40 year career in the business. The lenders know the risk which is why their rates are 4+ times greater than the more conventional loans. Which is also why oil patch management has always accepted those high rates because it provided short term high growth rates. Also amazing that in such reports they clearly avoid using the term “junk bonds” as if they weren’t a significant portion of the dynamic. Growth rates they knew were not sustainable but since they were getting most of their cut out of the front end it didn’t reality matter what the long term consequences might be…those management teams will be gone by then with their profits already monetized. This is not a new business model: it has dominated the oil patch since the day Col. Drake drilled that first oil well in PA more than 100 years ago.

  4. rockman on Tue, 26th Apr 2016 7:40 am 

    Cloud – have you checked the previous investments of your retirement fund? Some of the liquidation below value might be coming from you already. I find may folks don’t dig into the details any further then the net growth of those funds. Many of the diversified funds still had some exposure to the energy sector.

  5. Kenz300 on Tue, 26th Apr 2016 8:44 am 

    Fossil fuels are the past……….

    Wind and solar are the future…………

    The oil companies and the auto companies need to get their collective heads out of the sand and realize that the world is changing with or without them. Climate Change is real….. it will impact all of us…

    It is time to move away from fossil fuels and embrace alternative energy sources like wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste. They need to change their business models and move from being OIL companies to ENERGY companies. The auto industry needs to move from just building compliance vehicles to embracing electric vehicles and start putting development and advertising behind them..

    The world is moving to embrace alternative energy sources…….. the fossil fuel companies can transform themselves into “energy” companies or they can die a slow death.

    As Climate Change impacts more people there will be a bigger backlash against fossil fuels.

  6. Plantagenet on Tue, 26th Apr 2016 10:45 am 

    So far the main impact of global warming has been to improve most people’s weather.

    http://www.latimes.com/science/sciencenow/la-sci-sn-climate-change-better-weather-america-20160420-story.html

    In a few decades the impact of AGW will be more severe, but for now tt is mostly benign. Thats why Obama and other politicians aren’t doing anything significant about it yet.

    CHEERS!

  7. Boat on Tue, 26th Apr 2016 11:06 am 

    Other politicians, you mean Republicans? I am sure Obama would have had much more success in regards to the climate if the opposing party thought carbon was bad.

  8. PracticalMaina on Tue, 26th Apr 2016 11:11 am 

    Almost the entire midwest is under severe tornado watch in April and plant thinks everything is peachy. Just because Alaska had an easy winter does not mean things are not getting royally screwed by climate change elsewhere. Go tell a emaciated polar bear climate change isn’t so bad yet.

  9. GregT on Tue, 26th Apr 2016 11:20 am 

    “Other politicians, you mean Republicans?”

    Less than 5% of the world’s population has fallen for the democrats vs republicans debacle Boat. Climate change is a global problem, not an American problem. Expand your horizons. As difficult as it may be for you, try thinking outside of your insignificant little tax farm.

  10. PracticalMaina on Tue, 26th Apr 2016 11:28 am 

    http://money.cnn.com/2016/04/26/investing/exxonmobil-loses-aaa-rating/

    OOO so sad for them losing their AAA rating, they have not lost their F rating on morals and ethics with me though, they also still get an F in sustainability and overall business model, because when you destroy the world for profit, your shareholders don’t really get to enjoy it.

  11. Boat on Tue, 26th Apr 2016 11:39 am 

    gregt,

    If the US was the 5th, 20th, or 100th largest
    economy in the world you and others wouldn’t be so fixated on what it thinks or does. It’s tough at 1.

  12. Apneaman on Tue, 26th Apr 2016 11:47 am 

    Practical, it’s all good. It will help distract them from all the fracking earthquakes.

    Dangerous tornado outbreak targets the Central U.S.

    http://mashable.com/2016/04/25/tornado-outbreak-tuesday/#julStpcZIaqH

  13. Bob Owens on Tue, 26th Apr 2016 11:51 am 

    The US is being torn apart by bad weather amplified by climate change. Just look at the record flooding in Texas occurring now. Red Cross shelters are open about everywhere. Several of my co-workers have been sent to Texas to help out. How can we forget Hurricane Sandy that just about destroyed New Jersey and New York? Wake up people! Climate change is already doing serious damage and will only get worse in the future. I have spent 10 years with the Red Cross and have seen the destruction personally.

  14. GregT on Tue, 26th Apr 2016 11:51 am 

    Hmmm,

    Would that be the same S&P that gave CDOs a triple A rating back in ’07, when in reality they were less than junk?

  15. GregT on Tue, 26th Apr 2016 12:06 pm 

    Boat,

    “If the US was the 5th, 20th, or 100th largest
    economy in the world you and others wouldn’t be so fixated on what it thinks or does. It’s tough at 1.”

    It’s rather difficult to not be fixated on your constant ignorance and stupidity Boat. The US economy, even though it is for all intents and purposes bankrupt, has nothing to do with the fact that climate change is not going to be solved by one government which supposedly represents 5% of the world’s population. As usual, you make absolutely zero sense.

  16. Cloud9 on Tue, 26th Apr 2016 12:23 pm 

    Rock, I must confess that I am very much like the rest of the sheep. I did not look into FRS specific investments because there was little or nothing I could do about it. I retired last June and split the baby. I pulled a good bit out. Some of it is in hard assets. Some of it is in rentals and some of it is liquid. I am still pulling down a pension as long as the system stays solvent. When it comes to investing I am not the brightest candle in the cupboard.

  17. ghung on Tue, 26th Apr 2016 12:29 pm 

    Ouch. Oil companies lose whopping $67 billion

    ” The crash in crude oil prices caused a stunning $67 billion in combined losses by 40 publicly-traded U.S. oil producers last year, according Energy Information Administration research. And the bleeding is expected to continue at least early this year for many.

    The losses surpassed $1 billion each from struggling oil companies like EOG Resources (EOG), Devon Energy (DVN) and Linn Energy (LINE) as well as SandRidge Energy (SD), the shale oil driller that recently admitted it’s exploring a bankruptcy filing.

    The EIA research excluded some of the largest oil companies such as ExxonMobil (XOM) and Chevron (CVX), both of which posted profits last year, albeit vastly smaller in size. These companies were excluded because they also have large offshore operations and the EIA report focused on on-shore oil companies.

    The analysis also revealed that the companies most vulnerable to losses were oil producers with too much debt taken on during the boom years. The 18 U.S. oil companies that reported the biggest losses were saddled with $57 billion in long-term debt. These big losers also had an alarming average long-term debt-to-equity ratio of 99%, the EIA said. ….

  18. Cloud9 on Tue, 26th Apr 2016 12:37 pm 

    According to Zerohedge, pension funds are loading up on this crap. This will be fun.

  19. GregT on Tue, 26th Apr 2016 12:42 pm 

    The largest transfer of wealth in mankind’s history, is taking place right before our very eyes, and most are completely oblivious to it.

  20. Anonymous on Tue, 26th Apr 2016 12:58 pm 

    So, these loans are being backed by oil reserves eh? Is that anything like bundling mortgages that the holders had no hope of ever repaying were bundled into CDO’s and knowingly sold to suckers, err I mean investors and pensions funds, even as the people selling them knew they were 100% junk?

    Wouldn’t happen to be the same group of banks and people that did that are now bundling loans based on something just as ephemeral? Ah, but what I am saying, how could this possibly go wrong…..

  21. Plantagenet on Tue, 26th Apr 2016 1:01 pm 

    It makes one wonder why the Obama administration isn’t doing something about all these scams involving people’s pensions. Oh, thats right—Obama signed a bill allowing contracts to be broken so people’s pensions to be cut—problem solved, I guess.

    Cheers!

  22. PracticalMaina on Tue, 26th Apr 2016 1:03 pm 

    Yeah there is your collateral, it’s at the bottom of that non-drilled non fracked-well, and BAU is grinding to a halt….Good Luck!! Thanks for the bailout money!

  23. rockman on Tue, 26th Apr 2016 1:45 pm 

    A – I don’t function in that end of the business but yes: initial lenders usually take fat fees upfront and then lay off a good bit of the loans to secondary lenders/investors.

    Every one of the players knows this is a game of musical chairs. Eventually the music stops and the game is over. There will always be losers because there will always be winners that have no trouble finding the smucks. LOL.

    Everyone is fixated on how much money has been lost but forget about the hundreds of $billions in revenue that has been sucked out of the system earlier. The monies invested in the shale plays wasn’t pushed into a giant pile and set on fire. Every penny ended up in someone’s pocket. People don’t understand that the value of the oil produced from the shales exceeded the monies spent including the debt. The only difference was that some came out ahead and some were left behind to suffer the consequences. Think about it: when US production increased by 3 mm bopd and was selling for $90/bbl someone got paid about $100 BILLION per year.

  24. PracticalMaina on Tue, 26th Apr 2016 1:49 pm 

    Rockman unfortunately some probably ended up in Dick Cheney’s hands, I would have preferred that money burned.

  25. Plantagenet on Tue, 26th Apr 2016 2:16 pm 

    @PracticalMaina

    Dick Cheney resigned as CEO of Hallbiturton in the year 2000—thats 16 years ago and somewhat before the shale boom really got going.

    If you want to blame someone for all the money being lost as the TOS oil companies go bust, then blame the FED. Since 2009 they’ve been pumping money out the door to “stimulate” the economy, and that “free money” is what allowed the banks to speculate on the TOS oil companies that are now going bankrupt.

    Cheers!

  26. PracticalMaina on Tue, 26th Apr 2016 2:27 pm 

    But you wouldn’t be able to say glut glut glut without the fed. I am sure the VP of the US and the former CEO still gets some kickbacks.

  27. Apneaman on Tue, 26th Apr 2016 2:41 pm 

    The end of oil as we know it

    “with a prediction that the end of oil as we know it is coming in 2030.”

    http://www.businessinsider.com/the-end-of-oil-as-we-know-it-2016-4

    That’s nothing conservation biologist Guy McPherson is predicting the extinction of apes by 2030.

    https://www.youtube.com/watch?v=YG9otasNmxI

  28. rockman on Tue, 26th Apr 2016 3:16 pm 

    Practical – You should keep an eye on the bi picture and forget the “little peope”. LOL.

    Just consider the landowners (most of which are small family farmers/ranchers)that received a minimum of $25 BILLION per year during the height of the boom. And at one point the citizens of Texas were collecting in excess of $ BILLION per year in severance taxes paid by the oil companies. And then there’s the $BILLIONS in salaries paid to Texas blue collar workers.

    So again lots of investments lost but a lot f good was also circulated into the public’s hands.

  29. Plantagenet on Tue, 26th Apr 2016 3:18 pm 

    @practical mania

    ???

    I never say “glut glut glut”. That must be somebody else or perhaps a delusion on your part.

    Cheers!

  30. Plantagenet on Tue, 26th Apr 2016 3:21 pm 

    Rockman is right. And its not just in Texas. A very percentage of the “economic growth” and the growth in jobs that the entire USA has experienced from 2009 up till now has come from the oil patch.

    In fact I’m surprised that the huge number of layoffs in the oil patch hasn’t shown up in as an increase in the unemployment number. But according to the Obama administration the US is at full employment right now.

    Cheers!

  31. charmcitysking on Tue, 26th Apr 2016 3:24 pm 

    @Plant

    I’m pretty sure Dick Cheney kept his Halliburton stock all through his tenure as VPOTUS and in all likelihood maintains significant holdings in the company to this day.

    Not CEO money sure, but he’s still making millions off Halliburton.

  32. Plantagenet on Tue, 26th Apr 2016 3:31 pm 

    @charmcitysking

    I don’t understand why people are so obsessed with the past? You can hate Dick Cheney all you want—I don’t care—- but what about the crop of crooks we’ve got in politics now?

    How about Hillary who earned millions at the rate of $250,000 a speech by giving a secret speech to all the wall street banks and hedge fund groups. And now she won’t tell us what is her secret speech? And she’s going to be the next president!

    Whoa—–like Wall Street doesn’t already control the governmentt, lets have an actual paid minion of Wall Street as President! Good thinking out there!

    CHeers!

  33. geopressure on Tue, 26th Apr 2016 4:26 pm 

    Dick Cheney has not been making money off Halliburton lately, there stock is down $20/share since 2014 & the dividends have only made maybe 1/10th of that back in that time, so he’s down $18/share…

    I think that he has an overriding royalty in bunch of Deepwater discoveries somehow or the other… not sure how he pulled that off…

    Plus, he’s been @ the top, he knows how the world works & he is able to use that knowledge to make accurate predictions & invest wisely – the same thing the Clinton Foundation does…

  34. Boat on Tue, 26th Apr 2016 4:32 pm 

    Apneaman on Tue, 26th Apr 2016 2:41 pm

    The end of oil as we know it
    “with a prediction that the end of oil as we know it is coming in 2030.”
    http://www.businessinsider.com/the-end-of-oil-as-we-know-it-2016-4

    This is one link I can agree with.

    Boat on Mon, 25th Apr 2016 5:31 pm

    Alternatives to oil will cause oil to peak for the last time way before 2040. But there will still be plenty of demand. My guess would be 2030 +/- 5 years with demand around 110 mbpd. Then slowly the market for oil will shrink.

    I posted that yesterday.

  35. Boat on Tue, 26th Apr 2016 4:54 pm 

    Plant,

    “In fact I’m surprised that the huge number of layoffs in the oil patch hasn’t shown up in as an increase in the unemployment number.”

    The oil and gas patch has dropped much of it’s work force but cheap energy prices are making the differance.

  36. Apneaman on Tue, 26th Apr 2016 5:13 pm 

    All those Texas BILLIONS are good? Can anyone explain why? Everyone in Texas could be a billionaire and the mindless pursuit of growth would not abate one bit. More would still be good and most would still not understand why. What’s the score on those fossil fuel billions when you subtract the ever growing externalities? In the last 30 days or so Texas has had two multi billion dollar AGW jacked deluges including that new Texas sized hail. They haven’t added it all up – it takes years sometimes and it always seems to grow. I’m guessing the two events will be in the 8 to 10 billion dollar range. Is that “good”?
    So y’all just going to pretend everything is all right and all the kids have a bright future, and the very best thing to do is keep fracking and burning as much shit as you can? I guess that’s what we all gonna do, eh?. Up here they are building a multi billion dollar dam to power the natgas industry in northern BC. They are pretending it’s for something else. Like Davy said – hypocrites. They like pay great lip service to AGW and have a carbon scheme and they recycle like mofo’s and a bunch of other green washing bullshit, all the while going about BAU. I guess it makes them feel better to pretend they are doing something. Lots of em have kids, so the need to pretend is much greater. What are they gonna say? Sorry kids you have no future. In Texas they are pretending nothing is wrong. I guess it’s just different strategies for the same thing. Apes are the great pretenders. It won’t be long until the cost of the externalities match and then exceed the profits of the cancer industry.

  37. makati1 on Tue, 26th Apr 2016 5:29 pm 

    Ap, you said everything I was thinking. ‘Mother Nature’ recognizes no “exceptional/indispensable/we are number one country. The American braggers are going to feel her fury just like anywhere else exposed to her whim. 10 years could see America a dust bowl again, torn apart by mega storms, tornadoes, floods, etc. in an ever increasing frequency.

    Texas has nothing to brag about. Stolen at the point of a gun from Mexico, it has been nothing but “big hat, no cattle” braggers for the last century. What if all that oil had been Mexican owned? I think history would have been much different.

  38. Boat on Tue, 26th Apr 2016 5:48 pm 

    Houston added 159,000 people in 2015.

  39. makati1 on Tue, 26th Apr 2016 6:16 pm 

    Talk about wrong choice…

    “…many students who went to school and took on student loans under the expectation of getting a six figure petroleum engineering job, a rude awakening is likely ahead.”

    http://www.zerohedge.com/news/2016-04-26/oil-crash-creates-glut-petroleum-engineers-more-layoffs-coming

    Maybe they can switch to making buggy whips?

    I encourage my grand kids to get a skill like carpentry, masonry, electrician, nursing or plumbing if they want a good future. But few have taken that advice. Too bad. Their choice.

  40. GregT on Tue, 26th Apr 2016 6:36 pm 

    @Boat,

    “This is one link I can agree with.”

    Me too. From the link that we both agree with:

    “This situation will be driven by three factors, the report says. First, developed nations will slowly ween themselves off of oil over the next decade. Bernstein argues that the West actually hit peak oil in 2005.
    At the same time, though, emerging-market demand will continue to grow, especially from China and India. That is where that push in 2020 will come from.”

    The downhill slide that we have been witnessing from ~2007 will continue, within 4 years time Western economies as we know them will be pretty much toast. Standards of living will decline considerably as a result of less available net energy.

    You ready Boat?

  41. GregT on Tue, 26th Apr 2016 7:01 pm 

    “Houston added 159,000 people in 2015.”

    I hear you Boat. Vancouver was about the same. A very good reason to get out while the going is still good. Vancouver may not have nearly as many guns per capita, but I’m sure people there will find other ways to kill each other off, as this shit storm gathers strength.

  42. Anonymous on Tue, 26th Apr 2016 7:55 pm 

    Planterswart says: Obama, Obama, squaaaak, oil glut, Obama, glut, squaaak, oil glut, Obama, were in an Obamaglut. Squaaak.

    Cheers.

  43. Apneaman on Tue, 26th Apr 2016 8:17 pm 

    “There is no doubt”: Exxon Knew CO2 Pollution Was A Global Threat By Late 1970s

    “DeSmog has uncovered Exxon corporate documents from the late 1970s stating unequivocally “there is no doubt” that CO2 from the burning of fossil fuels was a growing “problem” well understood within the company.

    “It is assumed that the major contributors of CO2 are the burning of fossil fuels… There is no doubt that increases in fossil fuel usage and decreases of forest cover are aggravating the potential problem of increased CO2 in the atmosphere. Technology exists to remove CO2 from stack gases but removal of only 50% of the CO2 would double the cost of power generation.” [emphasis added]

    Those lines appeared in a 1980 report, “Review of Environmental Protection Activities for 1978-1979,” produced by Imperial Oil, Exxon’s Canadian subsidiary.”

    http://www.desmogblog.com/2016/04/26/there-no-doubt-exxon-knew-co2-pollution-was-global-threat-late-1970s

  44. peakyeast on Thu, 28th Apr 2016 3:49 am 

    Uh oh – If the banks are selling this – then I would invest in it for a few months and then sell all – since its going to soar and then CRASH.

    Thats how they make business.

  45. Kenz300 on Fri, 29th Apr 2016 9:28 pm 

    Fossil fuels are the past….wind and solar are the future….

    Wind and solar are safer, cleaner and cheaper forms of energy…………..NO fossil fuels…………….

    Electric cars, bikes and mass transit are the future…..fossil fuel ICE cars are the past…………..
    Think teen agers vs your grand father…………………. cell phones vs land lines…….
    NO EMISSIONS……..climate change is real………

    U.S. Coal Use Falls 29 Percent

    http://ecowatch.com/2016/04/29/coal-use-falls-29-percent/

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