Borrowing bases and production loans sized on proved developed producing reserves.
Reserve-based lending is a revolving credit facility for oil and gas producers sized to the value of their proved reserves. The lender values the reserves using an engineering report and its own price deck, weighting proved developed producing reserves most heavily, and sets a borrowing base the producer can draw against. The base is redetermined periodically, commonly twice a year, as production, prices and the reserve report change.
Because the borrowing base moves with commodity prices, hedging, conservative draws and clean title matter as much as the reserves themselves. These guides explain how borrowing bases are calculated, what happens at a redetermination, how WTI price swings affect capacity, and what energy lenders want in a loan file.
Guides
Keep the Well: Financing the Drilling Instead of Giving Away Most of It — Most small and mid-sized operators raise drilling capital from investors and keep 30% to 50% of each well. Financing exists for operators, and it costs interest, not most of the production. One well, two ways, with the numbers.
The Oil and Gas Loan Application Checklist: Reserve Reports to Title Opinions — An oil and gas loan application is built around a reserve report, lease operating statements, production history, title and division orders, hedging, environmental and plugging liabilities, and financials. Here is what each is for and where files stall.
Bank or Private Lender for Your Oil and Gas Loan? — A decision framework for choosing between a commercial bank and a private energy lender for your oil and gas loan, by speed, cost, and leverage.
Seven Reasons Oil and Gas Loans Stall or Get Denied — Seven documentation and structuring problems that stall or kill oil and gas loans in underwriting, and the specific fix for each one, from stale reserve reports to title defects.
What Oil and Gas Lenders Look For: A Data Checklist — The document checklist energy lenders expect before they price a deal: reserve report, LOE detail, hedge book, title status, and financials, explained item by item.
Financing an Acquisition of Producing Oil Wells — A step-by-step playbook for financing a producing oil well acquisition: PDP PV10 valuation, lender matching, deal structure, and the closing timeline from LOI to funded close.
How WTI Price Swings Change Your Borrowing Capacity — Lenders don't use the WTI screen price to set your borrowing base — they run reserves through their own price deck. Here is how that gap actually works, and what to do about it.
Borrowing Base Redeterminations: An Operator's FAQ — A plain-English walk-through of what happens at a borrowing base redetermination: the process, the price deck, deficiency cures, and when to refinance.
How Reserve-Based Lending Works for Oil Producers — How reserve-based lending turns PDP reserves into a borrowing base, with typical advance rates, covenants, and pricing for oil and gas producers.
Frequently asked questions
What is a borrowing base in oil and gas lending?
The borrowing base is the maximum a producer can borrow under a reserve-based facility. The lender sets it from the present value of the producer's proved reserves, calculated with its own price assumptions and weighted toward producing reserves, and adjusts it at each redetermination.
How often is a borrowing base redetermined?
Many reserve-based facilities are redetermined about twice a year, using an updated reserve report and the lender's current price deck, and often allow additional interim redeterminations at the lender's or borrower's request. A falling price deck can reduce the base and create a deficiency.
What reserves count toward the borrowing base?
Proved developed producing reserves carry the most weight because they are already flowing. Lenders commonly give limited or no value to undeveloped reserves, and they apply their own price and risk assumptions rather than the producer's.
How MercFinancial places it
Reserve-Based Lending — Borrowing bases and production loans sized on proved developed producing reserves.