BOK Financial is bullish on oil and gas lending as prices surge and large banks pull back amid concerns about climate change.
The energy sector is capitalizing on the high prices and investing in growth, the Tulsa, Oklahoma-based bank said Wednesday during its second-quarter earnings call. BOK Financial is meeting the rising demand and winning business away from competitors, according to CEO Stacy Kymes.
Larger banks, including JPMorgan Chase and Wells Fargo, are downsizing their oil and gas books as investors clamor for climate change commitments.
“This has been a really historic opportunity for BOK Financial to take market share,” Kymes said during a call with analysts Wednesday.
Energy loan balances at the $45 billion-asset bank grew $195 million in the second quarter and have increased $386 million since the start of the year. Energy loans were up 6% from the prior quarter, while unfunded commitments to companies in the sector were ahead 11%, creating more opportunity for loan growth in the quarters ahead, executives said.
U.S. oil producers last week boosted production to a 2022 high, while natural gas production also hit a peak in July, according to U.S. Energy Information Administration data.
The higher production levels come in response to global supply shortages of both oil and gas caused by the COVID-19 pandemic, which were exacerbated this year by Western sanctions against Russia. The United States and Europe have sought to punish Russia for its invasion of Ukraine with sanctions that include embargoes on Russian oil.
At the same time, global demand for oil is rising amid a travel rebound, and consumption of natural gas is soaring as a heat wave grips the United States and Europe, necessitating greater energy use to cool homes, offices and other buildings.
Brent crude oil prices, the international benchmark, are up nearly 40% in 2022. Prices for natural gas have more than doubled.
With interest rates rising and the specter of a recession looming, Kymes said BOK Financial’s energy-heavy footprint is poised to weather an economic storm.
“It’s always been a great portfolio for us,” Kymes said. “Even in the downtimes that we’ve been through, we performed exceptionally well.”
“And actually, as people begin to think about the potential for a recession or a downturn in the economy, it’s really hard for us to envision a dramatic downturn in our footprint states, given the support that commodities will have in Oklahoma and Texas, Colorado and New Mexico, in particular.”
The “likelihood that you could have a better regional outcome in this footprint that we are in than other parts of the country is very high with commodity prices at the level that they are today,” Kymes added.
“I think commodity prices are going to stay higher on a relative basis. They could go lower than they are today, particularly natural gas, but still, on a relative basis, be much higher than they’ve been in the last several years and support our local economies at a high level.”
Boosted by energy, BOK Financial said its overall second-quarter average loan balances were $21.1 billion, up $594 million from the prior quarter. The company’s executives said that they expect demand for energy loans to continue rising through the year, as borrowing to make investments in the sector is mounting.
The company’s second quarter net income was $132.8 million, or $1.96 per share, compared with $167.1 million, or $2.40 per share, a year earlier. Second-quarter 2021 results benefited from a large loan-loss reserve release.