Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from Adam Barkstrom - Sterne, Agee & Leach, Inc.
Adam Barkstrom - Sterne, Agee & Leach, Inc.
I do want to ask a couple of follow ups on credit, but just sort of a macro question for you. I just wonder what your thought is. Oil is now bumping against $70 a barrel. Certainly you guys are in the heart of oil country there and I just wondered big picture, what are your thoughts with that? That’s a pretty dramatic decline in the price of oil in a pretty short period of time.
Joseph S. Exnicios
Let me try to explain how we do that. We are at least twice a year, and when the prices of the commodities drop like they have recently, it would prompt us to review our price debt for the E&P lending. We’re currently in the process of doing that. We are comfortable where we are. We’ve always taken a very conservative approach but we intend to upon completion of the review we currently have underway, we’re going to be lowering our price debt for the balance of this year and for 2009.
Adam Barkstrom - Sterne, Agee & Leach, Inc.
What does that mean, lowering your price debt?
Joseph S. Exnicios
That’s the price per barrel of oil when we run our economics on the oil and gas reserves.
John C. Hope, III
When we analyze the collateral offered on a reserve basis -
Adam Barkstrom - Sterne, Agee & Leach, Inc.
Okay.
Joseph S. Exnicios
When the price of oil got up in the $100’s our price debt was still in the $60 to $70 range when we were making loans.
Adam Barkstrom - Sterne, Agee & Leach, Inc.
Not to pin you down on a number, but is $70 a barrel, are we starting to get nervous here or does it have to go to $50 or $60 kind of the range? Any thoughts there?
Lewis P. Rogers
I think you’re beginning to speak more globally about the energy economy as opposed to how an oil and gas reserve based credit would perform and that would depend on the economics. As Joe indicated, we run those conservatively. Traditionally the energy companies have made good money at these levels.
I think what we’ve tried to do is always be cognizant of loading up the service and supply companies with term debt. How much could they take on? Many of us lived through the difficult times of 1985, ’86 and ’87 and so did our customer base. So they really know how difficult it is to deal with term exposure on equipment when there is no demand or falling demand or day rates for a variety of pieces of equipment falls. I think that the players can make money.
- To read the full transcript on Seeking Alpha, click here »
