NEW YORK Feb 23 U.S. banks are finally putting
tougher lending constraints on cash-strapped energy firms and,
on average, such companies could see a 15 percent to 20 percent
cut in their credit lines, the head of JP Morgan's
commercial bank told investors on Tuesday.
Until now, banks have been lenient with their energy clients
despite a prolonged slump in the price of oil, but Doug Petno,
the head of JP Morgan's commercial bank, said that was changing.
Moves by oil and gas companies such as Linn Energy
and SandRidge Energy to max out revolving credit lines - in
order to cover short-term funding gaps - have prompted banks to
Petno said JP Morgan was not waiting for April, when banks
traditionally reassess the value of oil reserves underpinning
energy loans - a process known as redetermination - to reassess
"We are not waiting for the spring redetermination to
discuss this with our clients," he said during a presentation at
JP Morgan's annual investor day in New York.
The biggest U.S. bank by assets plans to increase provisions
for expected losses on bad energy loans by more than 60 percent
in the first quarter.
Petno said he expected credit lines, on average, would
shrink by 15 percent to 20 percent across the industry, but
there would be wide variations depending on the health of the
"Some borrowing bases may by go up. Some may go down by 50
percent," he said.
A lurch in the price of oil below $30 a barrel last month
has forced companies to offload assets and cut staff to survive.
Dozens of companies have already hit the wall and a third of
oil producers and service firms, or 175 companies, are at high
risk of slipping into bankruptcy this year, according to a study
"Most of these clients are working with their banks way in
advance of redeterminations, so it is compelling M&A, it is
compelling asset sales, it is compelling discussions with
private equity. But there is a lot of leverage," said Petno.
"The most distressed clients know when they are going to be
pinched... and are taking the steps to deal with it," he added.
"There will be a meaningful number of these players who have no
options. I think we have only begun to see the range of
bankruptcies in oil and gas."
(Reporting by Carmel Crimmins; Editing by Bill Rigby)