Chan, S.A., First City Natl. Bank of Houston SPE Member


The independent producer is expected to be, knowledgeable on a wide range of subjects such as administration, geology, law, fund-raising, finance, engineering, negotiations, seismic interpretation, regulatory ruling, tax matters, oil field equipment, etc. One of the more crucial aspects in the successful establishment, organization, and growth of an oil company rests in the development and maturation of a strong banking relationship which could open doors to other financial institutions and markets.

The banking industry has long been a backbone in meeting the financial requirements of the petroleum industry. Of the many services which financial institutions provide, the secured oil and gas reserve loan may be the most common type of financing sought by the serious oilman. To the extent that the independent producer successfully applies for and obtains a secured loan, he must understand the, rationale and reasoning of both the banker and the borrower. Reasonable expectations concerning the financial request, loan structures, appropriate security, legal aspects, tax implications, and other requirements or constraints must all be integrated into a negotiated agreement.

Such a loan agreement should allow the independent producer enough flexibility to benefit by participating producer enough flexibility to benefit by participating in drilling and developmental projects which fits his field of expertise. Concurrently, the lender must have sufficient assurance that the loan will be repaid on a timely, basis through proceeds from the anticipated development projects, cash flow from existing operations, sale of assets, and/or guarantees of financially sound individuals or entities. A more thorough understanding, of the expectations and requirements from the oilman and the lender will assist the independent producer in his financial negotiations.


The petroleum companies and commercial bank lending, institutions have jointly cooperated in developing one of the most vital segments of our modern day economy, that of the oil and gas development and production industry. The banking stalwarts of the energy industry have solidly supported the exploration and production companies for over half a century. Trough the years as opportunities present themselves and as talented individuals break present themselves and as talented individuals break from the structured organization of larger companies, a whole holst of smaller independent producers has emerged.

Quite often the founder or chairman of the independent producer has risen to his level of prominence by doing a job very well, whether it is in prominence by doing a job very well, whether it is in the area of seismic interpretation, engineering, land leasing, administration, law, accounting, or whatever. As the captain of his ship, he must guide his ship through the murky waters of deregulation, re-regulation, stiff competition, uncertain economic markets and changing, technology. This corporate leader, must rely upon the timely and accurate advice of his counselors, of which not the least important is his relationship banker, to avoid the pitfalls and catastrophes that have fallen many companies.

Originally banks were used to obtain financing for drilling and development. Through time, the trendsetters of the petroleum industry have learned to build their banking relationship to be an integral resource of their decision making process. As oil companies have sought to grow through acquisitions, banks have become a familiar intermediary in an increasing number of property sales due to the broad Customer Case of petroleum companies at the leading energy banks. As the independent producer grows, the contacts with appropriate public market financial intermediaries are often initiated through strong regional or money market banks. During periods of expanding growth or of a stagnant economy, banks have assisted their customers in attempting to determine the credit worthiness of the oil company's customers and creditors. Even though the banks responsibilities to the petroleum industry has expanded to that of a financial advisor and counselor, the most predominate role of leading energy banks is to lend additional capital necessary in developing oil and natural gas fields of low to moderate risk.

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