An energy lending institution since 1910, BOK Financial (it derives its current name from its earlier name, Bank of Oklahoma) maintains offices in Houston, Denver, Tulsa, Oklahoma City, and Dallas, and invests more of its portfolio in Permian Basin projects than in any other basin. Jason Reimbold, Managing Director of Energy Investment Banking at BOK Financial, talks about why that is so, and about how his institution operates.
PB Oil and Gas Magazine: Thanks for speaking with us, Jason! Let’s begin with something that is a topic of conversation everywhere: the price of oil. This morning (11/1/21) that price was up another dollar, to $84.73. It’s been a nice little run. What are your feelings about where the price is today and the general upward trend?
Reimbold: Well, it’s difficult, of course, to predict commodity pricing. However, if we look at the way oil and, frankly, natural gas are both trading, seemingly the market appears confident that we’re going to sustain these higher prices for some period of time.
PBO&G: We get that feeling too. At the Permian Basin International Oil Show in Odessa in October, there was a lot of optimism expressed. That was in the Permian Basin, of course, and we know that BOK Financial has done a lot of business there. What do you like about the Permian Basin?
Reimbold: The Permian Basin has, for a long time, been a very active area for us. BOK Financial has more than $800 million in commitments through our energy lending group to companies with assets in the Basin. And in our investment bank, which is the group that I lead, during the period 2020 to present, half of our closed engagement occurred within the Basin. And so this has been a very important region for BOKF. And we see that continuing to be the case going forward. The Permian Basin has really just been an incredible resource for the country, if I may say it in that way. And certainly with BOKF’s history in the industry, we’ve been happy to be a partner to the sector in that region.
Have you found within your market that is there a certain sweet spot or a certain kind of oil deal that you like better than others?
I would say we’re fairly open to different opportunities. We really approach each opportunity on its own merits, whether that’s financing the acquisition of an asset for a company, lending money against a company’s reserves, or facilitating a transaction in our investment banking group, working on the sell side to help place an offering for clients. We’ve historically been able to find many different ways to work with the industry, especially in the Permian Basin. We do have energy lending clients and investment banking clients in all of the major basins.
Can you speak to the topic of hedging? I know it’s a big factor in companies’ profitability today, but I’m not sure how, or even if, it touches what you do.
Sure. Hedging is actually one of the services that our institution offers our industry partners. Different companies will have a different approach or strategy to hedging. As we spoke about earlier, commodity prices are difficult to forecast and we really don’t focus so much on trying to predict the commodity price—but that’s because we have a tool in hedging that allows us to manage that volatility and risk, if that makes sense. And our most successful clients do utilize hedging as a way to mitigate that risk.
When I looked at the price of oil this morning online, I saw a headline on oilprice.com that said, “Chronic Underinvestment Could Send Energy Prices Higher for Longer.” Can you comment on that ‘underinvestment’ factor? Do you feel like there has been underinvestment in oil?
I would have to read the article of course to be certain what they’re speaking to, but I think that in the disruption that occurred in 2020 with respect to many industries and certainly the oil and gas industry, we saw basically a pulling back of continued development of our reserves. And we’ve also seen consolidation within our industry over the last year. I think we can also see that a number of people have also left the industry and gone to other areas for employment. And so the combination of those things, in addition to what has been the continued increasing demand for our product, is a lot of what is driving these increasing commodity prices. And it will not be something that we can easily turn back on [supply, that is], with respect to production, if you will. We are still facing a labor shortage in this industry and others.
We are also experiencing a time, as was mentioned earlier, when some financial institutions have left this sector. And while commodity prices have continued to improve since the lows of last year in a very significant way, we have not seen yet a return of a number of capital providers to the sector. So, in that way, the industry is experiencing some capital constraints. There is also the inflationary effect that has been going on globally. These kinds of things are all contributing factors to sustained higher prices for or energy.
Could you characterize more of a traditional or typical partnership you might have with a client company? For instance, what is the relationship like?
Very happy to speak to that. I would say that our relationships with clients generally fall into a couple of different categories. Primarily we have been a lender to the sector. So whether that is a company utilizing its producing assets to secure a loan, to support continued development, or to just conduct ongoing business activity, that would be one way. Or, as has been the case more recently, it’s been a case of providing acquisition financing for the industry—again, by way of a reserve base loan—that has been something we’re very active in. The service that augments that lending business would be the hedging service that we spoke about.
We actually have our own hedge desk internally, and so that is a service that we’re providing directly to our clients, rather than farming them out to third parties to help them manage risk for their company. And then the other category where we’re servicing, generally speaking, our clients is in our energy investment bank, where we are primarily representing companies who have made a decision to sell assets. There may have been a decision within a company to sell all of their assets, or it could be that they have decided to sell what would be possibly non-core assets and utilize those proceeds for different reasons, whether that is to repay debt, reallocate capital to more economic projects, etc. And so it’s really in those two categories where we’re doing most of our work with industry partners.
PBO&G: Thanks for your time.
Reimbold: Thank you as well. We are sometimes so busy working that we’re not necessarily telling our story to everybody. And so we’re happy to get the word out and just remind people BOK Financial’s commitment to this sector.