US Banks Prepare to Seize Energy Assets as Shale Boom Goes Bust

Rather than sell into this market they plan to operate the rigs themselves

Major U.S. lenders are preparing to become operators of oil and gas fields across the country for the first time in a generation to avoid losses on loans to energy companies that may go bankrupt, sources aware of the plans told Reuters. [Pretty sure they’re still going to get losses but from drilling.]

JPMorgan Chase, Wells Fargo, Bank of America and Citigroup are each in the process of setting up independent companies to own oil and gas assets, said three people who were not authorized to discuss the matter publicly. The banks are also looking to hire executives with relevant expertise to manage them, the sources said.

The banks did not provide comment in time for publication.

Energy companies are suffering through a plunge in oil prices caused by the [response to the] coronavirus pandemic and a supply glut, with crude prices down more than 60% this year.

Although oil prices may gain support from a potential agreement Thursday between Saudi Arabia and Russia to cut production, few believe the curtailment can offset a 30% drop in global fuel demand, as the [response to] coronavirus has grounded aircraft, reduced vehicle use and curbed economic activity more broadly.

Oil and gas companies working in shale basins from Texas to Wyoming are saddled with debt.

The industry is estimated to owe more than $200 billion to lenders through loans backed by oil and gas reserves. As revenue has plummeted and assets have declined in value, some companies are saying they may be unable to repay.

Whiting Petroleum Corp WLL.N became the first producer to file for Chapter 11 bankruptcy on April 1. Others, including Chesapeake Energy Corp CHK.N, Denbury Resources Inc DNR.N and Callon Petroleum Co CPE.N, have also hired debt advisers.

If banks do not retain bankrupt assets, they might be forced to sell them for pennies on the dollar at current prices.

The companies they are setting up could manage oil and gas assets until conditions improve enough to sell at a meaningful value.

Big banks will need to get regulatory waivers to execute their plans, because of limitations on their involvement with physical commodities, sources said.

Banks are hoping their planned ownership time frame of a year or so will pass a Federal Reserve requirement that they do not plan to hold assets for a long time. Because lenders would be stepping in to support part of the economy that is important to any potential rebound, and which has not gotten direct bailouts from the federal government, that might help applications, too.

For now, the banks are establishing holding companies that can sit above limited liability companies (LLCs) containing seized assets. The LLCs would be owned proportionally by banks participating in the original secured loan.

To run the oil-and-gas operations, banks might hire former industry executives or specialty firms that have done so for private equity, sources said. Houston-based EnerVest Operating LLC would be among the most likely operators, sources said.

“We regularly look for opportunities to operate on behalf of other entities, that is no different in this market,” said EnerVest Operating’s chief executive, Alex Zazzi.


U.S. banks have not done anything like this since the late-1980s, when another oil-price rout bankrupted a bunch of energy companies. More recently, they have relied on restructuring processes that prioritize them as secured creditors and leave bondholders to seek control in lieu of payment.

But banks are becoming more assertive because of the coronavirus recession and balance sheet vulnerabilities that have developed in recent years.

U.S. oil and gas producers have increasingly relied on banks for cash over the past year, as debt or equity options dried up. Lenders have been conservative in valuing hydrocarbons used as collateral, but recent restructurings have left them spooked.

Alta Mesa Resources’ bankruptcy will likely provide banks with less than two-thirds of their money, while Sanchez Energy’s could leave them with nothing.

The structures banks are setting up will take a few months to establish, sources said. That gives producers until the fall – the next time banks will evaluate the collateral behind energy loans – to get their houses in order.

After several years of on-and-off issues with energy borrowers, lenders have little choice but to take more dramatic steps, said Buddy Clark, a restructuring partner at law firm Haynes and Boone.

“Banks can now believably wield the threat that they will foreclose on the company and its properties if they don’t pay their loan back,” he said.

Source: NASDAQ

  1. ke4ram says

    The main objective of the central banks and their children are to own everything. We are seeing this played out daily.

  2. Paulo Henrique says

    “Capitalism” without risks ????

  3. Ronnie&MargaretInDementia says

    The US truly has become a socialist nation and I feel sure the proletariat will be paying for the burden. Glory to the people glory to the great State glory be to the bottomless pit of the tax payers pocket. Pay and then die for the glory of the USSA! Shame the largesse doesn’t run to a functioning health service for the millions of unemployed, gig economy, pay check to pay check grunts that keep the whole farce running! Wake the **** up america.

    1. Robert Bruce says

      Banks will own the shale oil industry, not the US government, hence hoyeru is right, it is corporatism.

    2. hoyeru says

      its NOT socialism of ANY kind, it’s pure Corporatism i.e. Feudalism where the Masters own EVERYTHING.

  4. mijj says

    > “US Banks …”

    ie. the actual US government

  5. Mary E says

    Apparently the banks didn’t foresee this debacle in its infancy! Way back in the 1990s, shale oil drilling/fracking wasn’t profitable to the point of working those fields. Shale is very costly and difficult to extract…the silly banks didn’t investigate these schemes ealry on so now they pay ….dearly.

    1. fluttershield mlp says

      They always get bailed out. No skin off their nose because there is no accountability in the USA.

    2. Ron Ronery says

      Private Banks (International Finance) are the Elite that rule the world. They use the US and foreign armies to overthrow a “sovereign” country on the pretense of “democracy/freedom”. Install a puppet government and control/own the countries national assets (i.e. Iraq). The defeated country is left in ruins. The current virus hoax is being used so the Private Banks can buy up the Western Worlds national assets 10 cents to the dollar. This is how the evil parasites rule over the world. The Private Banks (real owners probably a few dozen families) have been planning how to conquer the world since the 1700’s. The USA was 100% overthrown in 1913 with the passing of the Federal Reserve Act. The Federal Reserve (Private Bank) loans money created from thin air to the government at interest thus controlling the economy. This has been the modus operandi for all Western “democratic” countries. For all the others, it’s your usual demonizing with lies and prpaganda and then war (either military, economic or both). All the sheep have been fooled.

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