Weather in Texas can change quickly and dramatically. During the winter, it is not uncommon in some parts of the state for the temperature to drop 40 to 50 degrees Fahrenheit in a matter of hours as a "blue norther" blows through. The Lone Star State is known for spectacular storms, from hurricanes along the Gulf Coast to tornadoes in North and West Texas.

The oil and gas industry can be just as volatile as Texas weather - one day prices are up and the next they are down. Recently, prices declined from $100 to less than $50 in about six months. Unfortunately, even veteran oilmen don't always adequately prepare for the down cycles.

There's a reason for this. Oil and gas people are consummate risk-takers and optimists. It's the hallmark of an industry that is searching to extract a hidden treasure thousands of feet below the surface. It's hard to be risk averse in an occupation that rewards the successful so well. If you're afraid of risk, this is probably the wrong industry for you.

That said, it's necessary to manage risk in the petroleum business. Energy bankers and financial service firms are experts at helping companies minimize their exposure to risk while aiding them in their efforts to achieve financial success. A good investment bank has the breadth of expertise over banking, advisory and capital markets, trading and hedging, funds management, asset finance, securities, and research and analysis. The range of products and services offered can be an enormous benefit to oil and gas customers.

In this issue of OGFJ, we talk to the experts at Macquarie who tell us about the opportunities that are available to prudent operators and investors in a down market. They tell us that low-price environments can create compelling possibilities for well-positioned players with strong balance sheets, ample liquidity, and hedged production.

We also hear from Eran Chvika of Norton Rose Fulbright, who discusses reserve-based lending as a flexible method of financing that is attractive to both lenders and borrowers because the availability of funds is based on the value of oil and gas assets.

Finally, Muhammad Waqas looks at project finance, a type of long-term infrastructure financing whereby the loan is repaid from the cash flows generated by the project. It's a lot more complicated than that, but read Muhammad's article starting on page 42 to learn more.

We hope you find this special Energy Banking issue interesting and useful.

Good reading!

Don Stowers
Editor - OGFJ

Energy bankers have your back

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