RBL - the mechanics5 Feb 2020 09:28
some useful background here
https://www.scor.com/sites/default/files/scor_memo_rblinsurance_web.pdf
https://energypolicy.columbia.edu/sites/default/files/Reserve_Base_Lending_Outlook_For_Shale_Oil_Gas_Finance_May2017.pdf
The later has some metrics on lending:_
The “proved reserves” category is itself broken down into three different sub-categories reflecting different levels of risk associated with the production and valuation of the reserves: proved developed producing (PDP),
proved developed nonproducing (PDNP) and
proved undeveloped (PUD).
As the producing reserves have the lowest risk, the Advance Rate (1-risk factor) for PDP ranges from 99 percent to 95 percent.
The PDNP Advance Rate ranges from 65 percent to 75 percent; and PUDs have the highest risk as a substantial amount of capital expenditure is needed to bring PUDs to production, reflecting a risk factor of 50 percent to 60 percent.
Typically, PDP/PDNP/ PUD risk factors are at the independent engineer’s discretion within a bank’s internal risk policy.
The borrowing base calculation methodology is based on the net present value (PV9) of future cash flows from oil and gas production under each lender’s assumed price deck and the appetite of the sector
.
Figure 8 and figure 9 show the range of banks’ price deck in 3Q 2014, right before the oil price collapse, and the 3Q 2016 price decks. The data is collected and published by Macquarie Tristone’s Quarterly Energy Lender Price Survey.18 The difference between the highest and lowest price decks could be substantial.
The high price deck typically tracks the NYMEX Futures. As shown, the majority of banks’ oil and gas price decks incorporate discounts from the NYMEX Futures.
Table 1: Borrowing Base by Reserve Type
Reserve Type Advance Rate (%) Borrowing Base ($)
Proved
PDP AR1: 95%-99% PDB (BB) = AR1 * PDP
PDNP AR2: 65%-75% PDNB (BB) =AR2* PDNP
PUD AR3: 50%-60% PUD (BB) =AR3* PUD
Total Proved PDB (BB) + PDNB (BB) + PUD (BB)
Probable N/A No borrowing base credit extended
Possible N/A No borrowing base credit extended
So Proven Producing the bank will consider lending on up to 95% of the reserves BUT that is not on the total selling price the company receives - it's based of course on after tax, after cost revenues - and maybe extra risk premiums depending on how robust the project is to things like politics or oil price.
Its not easy to find hard numbers but a few indicators suggest they effectively value PDP reserves at 30-50% of their "sale" value
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