A former senior trader at Goldman Sachs has linked with AllianceBernstein to lend billions of dollars to US oil and gas producers, offsetting a trend towards scarcer financing for the energy sector.
The availability of credit is a crucial variable for forecasting oil output after the recent price collapse. If drillers cannot borrow, it will hasten the decline in production and help bring a glutted market into balance.
While there are signs money is tighter, the partnership announced on Wednesday by AllianceBernstein, the asset manager, and HudsonField, a recently formed energy merchant, shows investors are willing to finance some oil and gas companies.
“We genuinely believe there are many proficient operators who can produce economically, even in this price environment,” said Ben Freeman, HudsonField’s founder and chief executive who was Goldman’s global head of oil derivatives trading.
AllianceBernstein has raised $2bn to lend mainly to middle-market oil and gas companies. HudsonField will identify operators in shale basins such as the Eagle Ford and Permian of Texas and the Utica and Marcellus of the north-east, Mr Freeman said.
HudsonField’s other businesses will consist of trading physical oil and gas and offering hedges such as fixed price contracts to producers. Its senior management includes former executives from Goldman, Trafigura, the trading house, and Buckeye Partners, an energy transport group. Its name comes from its two office locations: in New York on the Hudson river and in Houston near Texas oilfields.
Brent Humphries, president of AB Private Credit Investors, said in a statement that HudsonField would “serve as a significant origination source for middle-market energy loans and investments. Their expertise in oil and gas risk management and hedging will further serve as a benefit to borrowers that seek to actively manage their exposure to oil and gas prices.”
Mr Freeman said banks had partially cut back on lending to energy companies due to rules enacted after the financial crisis. Several Wall Street banks have also shut or curtailed their commodities businesses, leaving fewer counterparties for producers wishing to hedge their output.
Loans from the new fund could cover drilling programmes, well refurbishments and paying down existing debt, the latter a potentially significant need as smaller companies’ oil and gas reserves undergo a twice-yearly revaluation by banks.
West Texas Intermediate crude was about $49 a barrel early on Wednesday, down by more than half from mid-2014. In the year to June, 83 cents of every dollar of operating cash at US onshore producers was devoted to debt repayment, according to the Energy Information Administration.
Analysts at Goldman warned in a note last month that “if investor capital is available to accommodate producers continuing to outspend cash flow, the slowdown in US production will take place too late or not at all, forcing oil markets to clear as they historically have, through a collapse to production costs once the surplus breaches logistical and storage capacity”.