The energy sector is undergoing considerable change and development, through digital technology to the quest for alternative energy provision. For this process financial backing and investment are important. These, and other challenges facing the sector, are outlined in a conversation with a leading business leader in the area of energy sector finance.
To understand more about the transformation of energy and the type of finaical support required, Digital Journal spoke with Jason Reimbold, Managing Director of Energy Investment Banking for BOK Financial (NASDAQ: BOKF).
Digital Journal: What are some of the trends you are currently seeing within the Energy space?
Jason Reimbold: The pandemic’s impact on energy demand and the price war between Saudi Arabia and Russia were two key drivers of change in the energy sector last year. This price war was detrimental to oil prices at a time when we were already anticipating weakened demand because of the pandemic. The combination of those two factors resulted in a significant decline in prices last year. From those events, we’ve seen a couple trends emerge: We are experiencing a dramatic recovery in pricing, but we also see investors and financial institutions exiting the space in pursuit of other opportunities.
However, the vacuum of capital leaving the larger hydrocarbon space has created an opportunity. As companies are selling longer dated portfolios, or being consolidated in large part because of shifting investment mandates, a variety of capital sponsors and LPs are re-assessing the space and looking to offer asymmetric products or returns; this presents new opportunities for those otherwise willing to think creatively and who are committed to the sector.
DJ: We have seen a lot of volatility over the past two years when it comes to the energy space, why is energy still a good investment?
Reimbold: The simplest answer is to look at the price recovery that took place over the past year. We’re now at a price that is higher than before the pandemic both for oil and natural gas, in a pretty significant way. That speaks to what the investment opportunity continues to be in this sector. While there is certainly a transition in our country and globally beyond oil and gas, that transition is going to take a long time.
The shortfall and being able to supply current demand is still going to have to be met by the efforts of this industry. There is much discussion about renewable energy these days—but we’re not there yet, and we will continue to rely upon hydrocarbons for quite some time to meet demand. The oil and gas industry will continue to be viable and necessary in the future.
DJ: We just saw natural gas prices surge to a seven-year high. Do you recommend the bullish position that many investors are taking?
Reimbold: While it is difficult to call the market, or commodity prices specifically, there are tools available for managing that risk. Our most successful clients utilize hedging as a risk mitigation strategy and, more importantly, as an opportunity to lock in returns where it makes the most sense.
DJ: How did BOK Financial get so involved in the energy lending space?
From our inception in 1910, BOK Financial has been involved in the oil and gas space. It was founded by four oil industry professionals. It’s our origin story. Since then, the bank has remained committed to this space. While we’ve diversified greatly since then, around 14% of our commercial loan portfolio remains in energy, and this demonstrates our commitment to the sector when compared to other financial institutions whose energy portfolio is just a smaller segment of their business.
We have been in the oil and gas industry since there has been an oil and gas industry. So, energy, in one capacity or another, is part of the core of who we are.
DJ: What do you currently offer today within your Energy practice?
Reimbold: Since 1910, our offerings have grown to include energy lending, hedging services, and most recently, energy investment banking. This makes our institution a one-stop-shop for companies in the energy sector.
It’s not just about the number of dollars we lend to the industry—it’s experience, expertise, commitment, and longevity that make us unique in this space. While a few others offer a similar suite of services, it’s rare to find them in institutions of our size. Our most direct competitors tend to be the largest money center banks, and so we’re punching above our weight class in this sector.
DJ: Do you believe Energy will remain a key priority for BOK Financial?
Reimbold: Energy is in our DNA. Since our inception, our institution has remained committed to the energy sector. Early in the pandemic, other banks were pulling back from the sector, or leaving altogether, while BOK Financial was making new loans, closing on new deals, and adding to our staff to service the industry. BOK Financial has a long term view of the industry, and our approach is consistent with a long term perspective. There’s a high level of comfort at this institution with this asset class, and that level of comfort comes from our expertise. We successfully navigate the industry cycles as they come, and our client commitment is unshakeable. This is what enables us to continue to grow our business at a time of uncertainty in the industry.
