Small Oil Firms Brace For Impact Of Volcker Rule

There are still a few more months before a new federal rule takes effect, barring banks from trading securities and derivatives on their own account. But the regulation known as the Volcker Rule, after former Federal Reserve Chairman Paul Volcker, is raising concerns in the oil and gas industry.

Small-to-midsize oil and gas companies routinely use instruments such as derivatives to raise capital and guard against falling prices.

Ernie Lachica is with the Houston office of accounting firm UHY. He says that, with banks expecting much closer scrutiny from federal regulators, those sources of capital and hedging are drying up.

“We’ve already seen a number of banks pull back over the last couple of months. Some of the more notable ones, you know, you're talking about JPMorgan and Deutsche Bank and all these others that have been talking about getting out of this particular area. I think we’re going to see more and more of that if this continues and the scrutiny level goes up.”

Lachica says small and midsize firms should be able to secure alternate funding as long as crude oil continues to trade above $90 a barrel. But he says that, should the price drop to $65 or lower, many companies would be forced to suspend drilling.

Bio photo of Andrew Schneider

Andrew Schneider

Business Reporter

Andrew Schneider joined KUHF in January 2011, after more than a decade as a print reporter for The Kiplinger Letter...