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Energy Lending Caught in a Squeeze

Banks are clashing with regulators over loan reviews that could crimp the flow of new credit to the oil patch.

The dispute is focused on the relatively narrow issue of loans secured by oil and gas companies’ reserves, but it highlights the much broader point of how postcrisis regulation of the financial industry is affecting sectors far from Wall Street.

On one side are the bankers who have been grappling with the plunge in oil prices and the need to shore up billions of dollars in credit extended to the energy industry. On the other are regulators eager to prevent another financial crisis while not knowing what it might be.

Caught in the middle are the small- and medium-size exploration and production companies that rely on credit lines that use their energy reserves as collateral. Banks are now beginning their fall reviews of the quality of that collateral and worry regulators could ding them for making loans the banks think are prudent. “We’re concerned about it,” said Matt McCaroll, chief executive of Houston-based Fieldwood Energy LLC. “These are challenging times for our business…and to have additional pressure on the relationship between borrower and lender is going to be very problematic.”

The oil and gas exploration company has about $1.75 billion of reserve-based loans with 23 banks. Mr. McCaroll said he has voiced his concerns with congressmen.

Several industry officials said the meeting, held at Wells Fargo’s offices in downtown Houston, was the first of its kind. The bankers and regulators sat around tables in a large room with a screen displaying the OCC’s agenda that largely focused on examining and rating the loans, people familiar with the meeting said.

The banks were concerned...


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