Citi Sees Credit Market At Center Of Shale Outcomes

Credit markets are at the center of how the U.S. shale industry will react to lower prices, an analyst said Monday.Weaker companies may eventually face reduced access to credit that has so far fueled much the U.S. shale oil boom, according to Citi's Eric G. Lee.A meeting of OPEC oil ministers expected this Spring could indirectly trigger a wave of impairment charges in the oil industry stemming from a widespread revaluation of proven reserves.Smaller players in the industry would be especially vulnerable to the consequences of such impairments because of their growing reliance on reserves-based lending, where credit is secured by undeveloped oil and gas reserves.Investors should "pay close attention to when and if impairment charges might hit," Lee said in a note. Lenders in the third quarter made reserves-based loans on an assumed a value of $78.30 a barrel, according to Lee, while recent price moves may suggest values for lending purposes as low as $50.Although such a large revision isn't assured, "it illustrates the potential scale of impact to credit facilities," Lee said.The longer oil prices are depressed the more likely lenders will play hardball. "But calling a short-term bottom is a precarious task in this environment," Lee said.