As the Biden administration pushes for a radical transition away from fossil fuels and major banks reduce their exposure to the sector, near-term demand for oil and gas is growing, creating opportunities for lenders such as SouthWest Bank to Odessa, Texas.
The $645 million asset bank has hired commercial lenders Richard Davis Browning II and Wes Webb to launch an oil and gas division, hoping to meet demand that the International Oil and Gas Agency forecasts energy will increase until 2022 and next year. Browning was previously a portfolio manager at Texas Capital Bank, while Webb joined SouthWest from First Oklahoma Bank, where he was a senior vice president. Both have spent several years focused on energy.
“We are thrilled to announce the creation of our new oil and gas department and the lenders who will make this department successful,” SouthWest CEO Dewey Bryant said in a press release. “I am convinced that they will have a positive impact on our markets which will position us well in the years to come.”
Big banks such as Wells Fargo in San Francisco and regional lenders including Prosperity Bancshares in Houston have reduced fossil fuel loans in recent years as part of the transition to renewable energies such as wind and solar. By extension, energy loans are declining overall as a percentage of total loans from these major banks.
According to data from S&P Global Market Intelligence, the majority of the 11 largest energy lenders — those with more than $100 million in exposure to the sector — further reduced their exposure in the first quarter.
Still, strong demand for oil and gas is fueling price spikes that make financing new drilling projects solidly profitable, said Jacob Thompson, managing director of Samco Capital Markets in Dallas.
Benchmark oil prices in the United States, for example, recently rose above $100 a barrel, up about 50% since the start of the year. “Traditionally, with anything above $70 to $75 a barrel, there’s a lot of money to be made,” Thompson said.
The US Department of Labor said on Wednesday that global prices for energy commodities, including oil and gas, inflated by 60% in June compared to a year earlier, as demand far exceeded supply.