Silence can be deadly. While conversations about challenging markets, disappointing results and murky forecasts may not make your banker’s day, they produce far better outcomes than leaving a vacuum to be filled with fear and presumption of the worst. In OFS, enough parties are reporting sea change results that credit officers and regulators are already asking your banker for answers. You want them to look apprised, be up to date and be able to say “yes, I am talking with them”. Communication can build trust, and trust matters.
2. This doesn’t impact us because…
Remaining optimistic and forward looking can be a great attribute. Doing it while ignoring the systemic impact of the current E&P capital cycle is at best, risky. In the past, service providers point to the special nature of their equipment / offering, the strength of their customers, or the particulars of their geography to cite why they are different and a lender should not worry. Today’s environment has lenders disregarding these former comforts given the recent experience of political shifts, capital plans, and technology adoption.
Source: Baker Hughes, CapIQ
3. Don’t worry, you have plenty of collateral.
Borrowers often get too comfortable in the borrowing base as defined at the outset of their capital relationship. The credit worthiness and collectability of receivables, the underlying value of iron and the ability to rely on take-or-pay contracts have all been negatively impacted enough to create a crisis of confidence in these metrics. Expect more with the current season of redetermination upon us. Collateral reliance is the best of a worst outcome and not soothing.
Redetermination: The recalculation of the borrowing base as a result of a change in value of the collateral used to determine the original borrowing amount. Source: Haynes & Boone LLP; Survey of 221 market executives