The Final Frontier: E&P's Low-Cost Operating Model

CHAPTER 7Financial Implications

Not only has the energy sector experienced tremendous evolution—our understanding of the underlying global resource base, the nature of ownership and principal stakeholders, technologies and methods for resource development, and its economics and business models—but so, too, has the financial sector. The big banks and capital markets played an essential role in the US oil and gas industry, which if a separate country would rank in GDP terms, sixteenth in the world, just ahead of Saudi Arabia.¹,² But the traditional roles of regulated banks and capital markets have been greatly reduced in an era of post‐financial crises politics, and this is especially true for the oil and gas industry.

Not surprisingly, there was a barrage of legislative and regulatory reform, including: Basel III capital adequacy and liquidity requirements, complex and far‐reaching Dodd‐Frank financial reform, unintended consequences of the Volcker Rule, new requirements by Office of Comptroller of the Currency for oil and gas exploration and production lending, and broader interpretations of the scope of noteholder protections in Section 316 of the Trust Indenture Act. The net effect of these, and many more changes, has been a retreat by the banks, especially in reserve‐based lending, project finance, commodity trading and market making, commodity hedges, and related structured financings. Public debt markets also have been affected with reductions in primary and secondary market ...