Long-time New Orleans energy lender Whitney National Bank has expanded its reach along the I-10 corridor, eastward to Tampa and more importantly for small independent producers, westward to Houston. During the past four years, the bayou banker-founded in 1883-has acquired several banking assets in the Houston area, hanging its familiar clock logo over such lending doors as the old American Bank and Bank of Houston. Meanwhile, the venerable Louisiana lender, with assets of about $8 billion, has beefed up its staffing and commitments to the upstream sector, with outstandings in the E&P arena now north of $150 million. "Notably, within the past six months, we've built up an almost stand-alone energy-banking group in the Houston area, headed by John Lane, who's responsible for our energy-lending practice throughout Texas," says Robert C. Stone, Whitney senior vice president of energy lending in New Orleans. Stone, a former ExxonMobil petroleum engineer, was himself brought on board by the bank four years ago to add technical expertise to Whitney's upstream-lending business-it already had a long-established portfolio of service and supply clients throughout the Gulf of Mexico area-and to expand the lender's regional E&P presence. With a focus on small independents, the bank's new Houston group has already booked four private energy credits within the Lone Star State. This includes a pair of $10-million commitments to two Houston acquire-and-exploit operators and a $15-million facility to support a West Texas producer's efforts to improve output through horizontal drilling. The bank has also committed $25 million-part of a $200-million-plus syndicated credit-to a private West Texas midstream company looking to expand its gas-gathering and gas-plant footprint in the region. Currently, the energy lender is in the process of adding five or six more new upstream relationships in Houston. "This is a real growth market," says Stone. "If you look at just the deposits in Harris County and the contiguous counties around Houston, there's a larger [banking] opportunity base than in all of Louisiana." Yet, Louisiana is still the engine for Whitney's diverse energy-lending practice. Among its dozen E&P relationships there, it recently led a $150-million syndicated credit for a home-grown private exploration/exploitation company. During the past year, it also provided a private New Orleans operator three acquisition-related facilities-each within the $4- to $7-million range-that allowed the producer to shift from high-decline-rate Gulf Coast properties to more stable, slower-decline-rate Midcontinent and Rockies assets. Even though Stone concedes that strong E&P cash flows within the current high-commodity-price cycle have dampened the need for energy borrowing, the banker is upbeat about future credit activity-if certain problems are addressed. "Right now, there's a huge gap or disconnect between buyers and sellers of properties-and even among financiers-in their commodity-price expectations," he says. "At some point, we're going to need to get to capitulation among all these parties where buyers no longer think in terms of $24 oil and $4 gas while sellers live in a world of $30 to $40 oil and $6 to $7 gas." One event that may precipitate such a capitulation is an easing and stabilization of commodity prices to the point where buyers and sellers can more readily come together. Says Stone, "Were it not for the weakness in the dollar right now, which is helping prop crude prices, we would see natural gas prices moving down. If that were to occur, we'd see additional A&D activity." Another stimulus for credit activity would be for lenders to rethink the way they value reserves. In today's competitive marketplace, banks can't be lending solely on the basis of 50% or 60% of proved developed producing (PDP) reserves anymore and survive, says Stone. "They've got to be more inclusive of other types of reserves in their loan valuations and focus on producers that are good at converting undeveloped or probable reserves to proved. "In short, based on their technical comfort level, they need to be thinking more in terms of P-90 or P-50 types of reserve bases where there's less distinction made between proved and probable reserves."
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