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Wednesday, March 22, 2017 1:18:37 PM
The recent downturn in crude oil prices comes at an unfortunate time for oil companies with the next round of bank reassessments of credit lines set to start next month.
A drop below $45/bbl likely would result in credit line reductions, raising the potential for cuts that crippled drillers a year ago, says Haynes & Boone law partner Kraig Grahmann; between the end of 2015 and October, when credit lines were last reassessed, the average borrowing base for U.S. explorers fell 16%.
“The next month is going to be absolutely critical from an oil price standpoint," says Macquarie analyst Paul Grigel. “If you see prices retrench further, clearly the banks are going to have to re-evaluate."
Analysts say companies that focus on natural gas, where prices have fallen faster, as well as drillers without a major presence in the lucrative Permian Basin, could be more vulnerable to credit cuts.
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