Oil and gas drillers are dreading an upcoming borrowing stress test

Workers secure drilling pipe sections on an oil drilling tower
Andrey Rudakov | Bloomberg | Getty Images

Drillers see the glass as half empty, while their lenders believe it's half full ahead of the latest round of stress tests for energy companies looking to tap debt and keep pumping.

Borrowers in the oil patch expect to see their borrowing ability slashed more than actual lending institutions do, a new survey from law firm Haynes and Boone indicates. The report comes ahead of the twice-a-year review during which lenders size up oil and gas customers' reserves so they can judge whether they're valuable enough to justify drillers' credit lines.

The value of reserves fluctuates with the cost of oil and gas, and many energy business operations are funded with revolving credit lines. With prices stuck in the $40 to $50 range for much of the year, the latest so-called borrowing base redetermination is coming with a lot of angst.

While lenders expect to see borrowing bases cut by an average of only 16 percent, borrowers are anticipating a decidedly more pessimistic 29-percent reduction. Overall, survey respondents expect the average borrowing base to be trimmed by 20 percent.

"I think it is an indication that borrowers are watching the price of their reserves remaining flat and are trying to be more realistic in their expectations," Jeff Nichols, leader of the firm's energy finance practice group, said in a statement.

It's a make-or-break period for some drillers that struggling to remain solvent as the oil price downturn enters its third year. More than 100 U.S. energy companies have filed for bankruptcy since the beginning of 2015, and more could follow if lenders cut their debt lifeline too deep.

Bankruptcy attorneys and restructuring specialists recently told CNBC that the industry is perhaps only halfway through the current wave of filings.

"We're going to have another round of borrowing base redeterminations," BakerHostetler bankruptcy attorney Elizabeth Green told CNBC. "That could generate some additional filings."

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Most respondents expect drillers to still be able to either negotiate a deal with their lenders or to sell off assets, but 13 percent expect bankruptcy to be the most likely path forward if drillers are no longer able to fund their business.

"Our figures reflect a continued belief within the industry that restructuring or bankruptcy may still be the answer for a number of producers dealing with drops in their borrowing bases," Haynes and Boone's energy practice Chair Buddy Clark said in a statement.

In the next 12 months, drillers are also expected to turn to private equity and other private debt sources rather than traditional banks. Those lenders often aren't subject to the same regulations that banks face. Federal regulators can pressure some banks to further reduce drillers' borrowing base if they decide the lender hasn't cut deep enough.

The survey was based on answers from 150 respondents including lenders, oil and gas producers, and services firms.