Corporate culture, enthusiasm draw 'Buzz' to Amegy Bank
Mikaila Adams,OGFJ – Associate Editor
As part of Amegy Bank's efforts to expand its commitment to the energy banking sector, Arthur R. "Buzz" Gralla, Jr. has joined the bank as senior advisor for energy banking.
Gralla's addition to Amegy Bank is a renewal of a partnership with Steve Kennedy, manager of Amegy's Energy Group, that started over 20 years ago. In 1986, the early stages of Kennedy's career took him to MBANK in Dallas. At the time, Gralla was running the bank's energy group in Houston.
"It's a great pleasure to work with Buzz again," said Kennedy. "He's got a great reputation in the oil and gas business, and especially in middle market energy banking."
"Buzz is joining Amegy's energy team at a perfect time, as we are seeking to grow our market share and deepen our relationships with the nation's energy companies with a focus on the oil and gas independent producer," added Kennedy.
Gralla's four-decade career has spanned all areas of energy banking and has taken him through all the ups and downs of the energy cycle. Through it all—good times and bad, Gralla remains entrenched in the business.
Most recently, Gralla served as Guaranty Bank's senior advisor for energy banking, a position he was promoted to in 2007 after establishing the bank's energy division in 2001. Comparing his departure from Guaranty Bank to Ronald Reagan's departure from the Democratic Party, Gralla offered with a good-natured laugh, "In my case I didn't leave Guaranty Bank, Guaranty Bank left me on August 21, 2009."
Enter Amegy Bank. "What particularly drew me to Amegy was the management team, including Steve and his energy banking team," said Gralla. Impressed by the corporate culture and the enthusiasm that he said "permeates throughout the organization" in a way that is "unique in the banking business today," Gralla joined Amegy.
Focus on independents
Part of that enthusiasm no doubt relates to Amegy's position within the energy banking business. "We're in a fun and unique position at Amegy to be able to bank the whole spectrum from the small independent oil and gas producer all the way to the NYSE-listed oil and gas company," said Kennedy. For some of the larger oil and gas companies, Amegy serves in the role of treasury management, but for Gralla and Kennedy, the real draw is the independents.
It was the 1930s oil business that brought Kennedy's independent oilman grandfather to Kilgore, Texas. "I know quite a bit about the business having grown up in the oil patch," said Kennedy, who earned a petroleum engineering degree from Texas A&M. "I am tied to the industry for life," he joked.
For Gralla, it's excitement that draws him to banking the smaller players—a market he describes as underserved. "A Fortune 500 company is much easier to bank than the smaller producer and there are some rewards for both the client and the bank in a successful partnership. To see what can be created by a management team and a company on the upside is more noticeable with a smaller company than a much larger one," he said.
Being selective in its partnerships is one of the reasons why, during this downturn, Amegy Bank boasts a loss rate 'significantly' less than its peer group. Since its formation, "the bank has made it a high priority to know who we're banking with and that makes a big difference," noted Kennedy.
"What we look for in management teams is people who have experienced downturns and over a period of years have showed their resilience to adjust their business plans to a changing environment," Gralla explained. Even with a great set of assets, the management team must know how to manage them in difficult times. "We were at $30 oil not that many months ago. Most management teams have been put to the test over the last year," he continued.
Sticking to the strategy
Being in the business through all cycles, the team knows the pitfalls. "We've been in the business long enough and most of our customers have, too, that we need to be well prepared for something like this in case it happened," noted Kennedy. While remaining optimistic, he notes the bank is always ready for a drop in oil prices and structures its deals accordingly.
"None of us expected $150 oil," said Gralla. "Most lenders, including Amegy Bank, never escalated prices anywhere close to those levels." For those that convinced themselves that the higher prices were here to stay, the adjustment coming back was painful, he continued. "All of our clients have to live with our price decks and our price decks never got close to those levels. Amegy generally uses 80% of the futures price. The bank stopped increasing its price deck when the price of oil was around $90," reiterated Kennedy. With the 80% rule, the bank didn't see much in its price deck above $70. "We did what we could to make sure that we didn't pull the rug out from any of our customers," Kennedy continued.
Many experts see liquidity in the debt markets—both the debt capital markets and the bank markets—for non-investment grade deals as a real sign of economic recovery. Kennedy agrees, but doesn't believe we've seen the market thaw quite yet. "I think pricing is higher right now as a reflection of the fact that not everybody is as active as we are," he said. The higher prices account for the higher capital costs and the limited number of active lenders.
A few years back, when capital flowed with ease, banks would, on occasion, finance service and supply equipment and/or accept drilling rigs as collateral. The turn in the economy saw a huge jump in laydown rigs, and as a result, a large drop in value. While it isn't a large part of Amegy's business, there is part of the energy group that lends to oilfield services companies. Kennedy points out that the bank has lended to companies that had "a very moderate amount of leverage, were well capitalized, and had good equity backing," and hasn't changed that philosophy. "While there are challenges even for those companies, I think that we and our borrowers are in pretty good shape. We remember the times back in the mid '80s when people would ask how much a drilling rig was worth and the reply was 'How much does it weigh?' You have to keep history in mind," he said. "As long as you're well prepared for them, you can weather the cycles and take advantage of the benefits on the upswing."
Since its inception 17 years ago with $50 million in assets to over $9 billion today, Amegy Bank has had an affinity for the owners and operators of energy and oilfield service companies. The energy lending team currently has more than $2.5 billion in commitments to over 200 companies.
And, as part of the Zions Bancorporation collection of banks—CEO Harris Simmons is a brother to Matt Simmons and L.E. Simmons—the organization has a strong commitment to the oil and gas business.
The entrepreneurial, "can do" spirit runs from the parent company all the way through to the producer. "To bank in this industry you have to be excited about it and have a long-term philosophy," said Gralla. "We mirror our clients from that perspective. It's infectious."
More Oil & Gas Finacial Journal Current Issue Articles
More Oil & Gas Financial Journal Archives Issue Articles