American Oil and Gas Reporter - July 2016 - 92

ConventionCoverage: California Independent Petroleum Association
should consider planning now to make
sure their produced water will meet the
revised standards, he suggested.
Surface disposal ponds will need permits issued by regional water quality
control boards, Bishop indicated. In addition to satisfying new pretreatment criteria, the new requirements include pond
permitting fees, he pointed out.

In response to a question on the balance
between science and politics in setting
water policy, Bishop asserted the Water
Resources Control Board continued to
see produced water as a resource the state
needed amid ongoing drought conditions.
"Instead of banning produced water,
we should be encouraging it," he asserted.
"But, we want it to be of high quality

and a quality that does not cause problems
for groundwater basins. If you use it for
agriculture, a percentage of it moves into
the groundwater. We want to make sure
we are protecting that groundwater. I
think it also is an opportunity, along with
working with the groundwater sustainability agencies, to utilize that for groundwater recharge."
❒

Opportunities Open In Equity Markets
NAPA, CA.-Before operators start
hunting for oil or natural gas, they first
have to successfully plan and capture the
capital to get drill bits turning. The California Independent Petroleum Association's annual convention offered a panel
discussion on how independents could
best navigate today's capital markets.
Guy Evangelista, who served as moderator of a panel that focused on available
debt equity markets, pointed out that
while many people focused on equity
from private sources, operators also could
find opportunities with institutional investors, such as universities, endowments
or insurance companies.
"I was reading that the top concern
for oil and gas producers was the risk of
access to capital," said Evangelista, senior
vice president and manager of the energy
group at the Bank of Oklahoma. "From
my experience, banks are open for business. On the equity side, there are billions

of dollars in capital waiting to be deployed.
Hedge funds still are in business, university
endowments are looking to place money,
and there are insurance company funds
coming to the market."
Dealing With Debt
Opening with a discussion of regulatory
environments, Joe Rottinghaus, a director
for Wells Fargo Bank's Denver energy
group, noted the U.S. Office of the Comptroller of the Currency updated its oil
and gas lending handbook for the first
time in 25 years. He said the revised
guidelines impacted banks' loan exposure
limits precisely as commodity prices were
straining clients' cash flows, making it
harder to extend capital.
Under the new OCC guidelines, banks
have additional constraints on their dealings with leveraged clients, requiring
them to demonstrate the fiscal ability to
reduce debt, he said. As a result, a number

Participating in a panel discussion on independents and capital markets at the California
Independent Petroleum Association's annual convention are, from left, Mark Greenﬁeld,
Scott Cockerham, Michael Ross and Joe Rottinghaus.

92 THE AMERICAN OIL & GAS REPORTER

of energy lenders in the senior secured
market have had to downgrade a number
of clients to nonpassed status, Rottinghaus
said. "Because of that, your portfolio
looks worse, and the banking industry
starts to require you to set aside additional
capital requirements to make sure you
are protecting deposit holders' investments," he posed. "So, the capital cost
goes up."
Mark Greenfield, a partner with Blank
Rome LLP, asserted there was no shortage
of capital providers, just a shift away
from certain traditional sources. Operators
who consider nontraditional lenders will
have more opportunities in the current
environment, he said. Lending costs are
higher, and in many cases operators will
be required to give up some equity, he
offered. In addition, Greenfield suggested
significant acquisition opportunities had
emerged. He marveled at the industry's
incredible ability to scale up activities to
spread costs over larger sources of income.
"So, there is no shortage; it is just a
matter of talking to the right sources of
capital," he advised.
Dealing with nontraditional lenders
often requires more creativity, suggested
Scott Cockerham, a managing director
and chief executive officer of Conway
Mackenzie Capital Advisors. He estimated
mezzanine lenders' cost of capital in the
20-25 percent range, including origination
fees and equity requirements in the forms
of warrants or options. Nontraditional
sources likely will have a higher equity
component, he cautioned. "There may
be a way to get a lending component that
gets you to a blended cost of capital that
is more expensive, but definitely is palatable," Cockerham allowed.
Operators experiencing financial distress face several options, including forbearance or partial relief from loans,
Cockerham said. He indicated that before
many debtors got to the point of forbear-

American Oil and Gas Reporter - July 2016

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