Trevor Hawes |Midland Telegram-Reporter | Banks maintained a “stay the course” mentality during the fall credit redeterminations season, but among the questions going into 2025 are what borrowing by oil and gas companies will look like and where capital will come from. (Hint…think “Family Offices.”)
“I would say that because companies have been forced by both their equity investors and their lenders to maintain more capital discipline and be a little more self-funded, it’s resulted in them not relying as heavily on their credit facilities for things like capital budgets,” said Kraig Grahmann, partner at Haynes Boone, which recently released its redeterminations and price survey results for fall 2024.
Companies in Haynes Boone’s surveys say credit has remained steady, and most banks are predicting sub-$70 oil in the coming years.
Over the next 12 months, 22% of respondents said they plan to source capital with cash flow from operations. Just 18% said they’d take debt from banks.
Grahmann says that as more banks, particularly in Europe, have greatly trimmed down or abandoned altogether lending to oil and gas, companies have had to seek other sources to lend them money.
Haynes Boone reports that 7% of companies will seek debt from alternative capital providers, and 12% will work equity deals with private equity firms. A third source matching private equity is family offices.
“From a financial perspective, oil companies have cleaned themselves up in a way that has attracted family office capital,” Grahmann said. “Oil and gas is an attractive option for family offices now because many of these investment opportunities are still undervalued. The broader public market is still kind of steering clear of oil and gas. Family offices have longer, more flexible investment horizons.”
Grahmann added that, from an ESG and policy perspective, family offices are far more flexible in their investment decisions than public equity, private equity and commercial banks.
On the financial side, Grahmann says the oil and gas industry has done a good job getting itself in the right financial shape to attract capital.
“Capital is obviously slowly coming back to the space, but it’s consistently coming back, and I think that’s probably the biggest message: They’ve done the right things, and the right things have led to results,” he said.
Story Credit: Trevor Hawes |Midland Telegram-Reporter
