Even as overall commercial lending
Oil and gas prices last year reached the highest levels in more than 10 years, due both to rising demand and lower supply levels following Russia's invasion of Ukraine. The European Union levied a series of sanctions against Russia in opposition to the war, ultimately resulting in sharply lower imports of Kremlin-backed energy to Europe. In turn, Europe shifted its focus to the United States for oil and, even more so, natural gas to heat homes in the winter.
Producers of fossil fuels in the U.S. have invested in oil and gas wells, equipment and staff to drive production increases in response — often seeking loans or drawing on lines of credit to enable more drilling, bankers say.
Oil production in 2022 hit the highest level since prior to the pandemic, and it has since climbed even more this year. U.S. oil output averaged 12.3 million barrels in the first full week of February, matching the strongest number since March 2020. Natural gas production climbed to more than 102 billion cubic feet per day late last year, a record, and has held near that level since, according to the U.S. Department of Energy.
"Russia's invasion of Ukraine fundamentally disrupted energy flows, resulting in widespread natural gas shortages, particularly in Europe," said Artem Abramov, an analyst at Rystad Energy.
With activity expected to endure, lenders say they are confident in energy borrowers' ability to repay loans even if the economy tilts into a
"We think that's a positive for us. We're seeing great opportunities there," Independent Bank Group Chairman and CEO David Brooks said of energy lending during the $18.3 billion-asset company's fourth-quarter earnings call in January.
The McKinney, Texas-based Independent posted a 68% year-over-year increase in energy exposure in the fourth quarter, according to an S&P Global Market Intelligence analysis.
S&P looked at 12 top oil and gas lenders and found that eight of them boosted their exposure to the energy sector in the fourth quarter.
Independent trailed only Bank7 Corp. in Oklahoma City in terms of increased energy exposure in the fourth quarter. The $1.6 billion-asset Bank7 reported an 86% annual jump in energy loans, according to S&P.
Thomas Travis, Bank7's president and CEO, said on the company's January earnings call that its energy-loan growth this year will moderate not due to a lack of opportunity, but because the bank does not want to become too concentrated in any one sector.
Energy loans made up about 14% of the bank's total portfolio at the end of 2022. "I would argue that it would have been really easy for us to run our energy book to 20% or 22%," Travis said.
The International Energy Agency said in its February
The IEA cited the Chinese government's move this year to lift pandemic-era travel restrictions, a development the agency said would drive robust demand for gasoline and other fuels derived from oil. At the same time, Russia's oil production is stagnating as the conflict in Ukraine approaches its one-year anniversary on Feb. 24, and the Organization of the Petroleum Exporting Countries in the oil-rich Middle East also recently scaled back its output.
This creates more opportunity for American producers, according to the Paris-based IEA. It expects the United States to pump oil at record rates this year.
The optimism in energy runs counter to predictions for overall lending. The Federal Reserve's latest quarterly senior loan officer opinion survey, released earlier this month, found bankers reporting
BOK Financial in Tulsa, Oklahoma, said it is mindful of recessionary pressures, but it remains
"Our footprint is much better than most," Kymes said.
