“Project economics
must support attracting
equity investments
in this new era or at
a minimum produce
favorable enough
return to balance
the current equity
return expectations
and a higher cost of
noncommercial debt.”
—Christina Kitchens,
East West Bank
managing director
SPECIAL
REPORT
28 Oil & Gas Journal | Apr. 3, 2017
proved developed producing (PDP) financing was combined
with stretch financing, which was offered by banks such as
Wells Fargo. That option had an element of debt and element
of equity. It was largely focused on companies with unde-veloped reserves, mostly proved, that could be developed
with the excess capital and then rolled into a conventional
borrowing base. “I can’t remember the last time I saw a unitranche deal,” Rowland said.
In the case of Swift Energy, “We’ve got either 11 or 13
banks in our bank group. Two of them are nonconventional
lenders that came through the reorganization pro-
cess. Several of the banks have gotten out of the
business since they originally entered and don’t
want to continue on.” Bank groups “are being re-
formed to attract the lenders that are still there, and
there still is a handful of lenders that are coming in
the business that weren’t here a couple years ago as
a result of just the normal cycling of opportunities.”
Rowland noted, “East West Bank would be one
of those. Two years ago I don’t think they had any
oil and gas lending experience or exposure and
now they’re pretty active in the business. An example go-
ing the other way would be Union Bank of California who I
know has had a presence since the early ‘80s…and they’re
completely out of the business except for at the very top in-
ternational investment grade companies. They’ve closed
their office here in Dallas and have sold off most of their
portfolio of noninvestment grade loans.”
Christina Kitchens, East West’s managing director, es-
tablished the bank’s national energy finance department.
Her division serves upstream, midstream, and downstream
middle-market firms with annual revenues of $2.5-750 mil-
lion, including private or public, sponsored
or non-sponsored firms; domestic, onshore
producers; and diversified royalty portfolio
companies.
“East West Bank launched its energy
platform in January 2016 after working to-
wards the specialty finance addition for a
number of years,” Kitchens explained to
OGJ. “In the downturn, the bank saw the
opportunity to be a meaningful entry in
both the scale of its balance sheet vs. those
banks exiting—or slowing down—and
its ability to attract talented energy bank-
ers. The bank prepared for what it was sure
would be a recovery due to the vital nature
of the industry.”
East West’s leadership continued
to hire and invest in the platform despite
the continued drop in commodity prices
and a slowing of acquisition and divestiture
Kitchens also noted that “a good many” of East West’s
peers are more conservative these days, and she’s observed
Kitchens describes the regulatory impact as “profound,”
having “narrowed debt available to firms in RBL structures
amongst additional standardization in banks’ cash-flow test-
ing and other impacts.” She said, “The primary effect is that
leverage profiles of E&P firms are narrowed when accessing
regulated debt or else they have to fund through unregu-
lated and more costly sources.”
As for other trends, Kitchens noted, “Certain conven-
