Banks have been exiting energy lending for several years. Morgan Stanley cut its fossil fuel financing by more than half in 2025. NatWest, previously one of the more active European providers of reserve-based lending to independent operators, has exited the market entirely. Among the largest Wall Street banks, energy financing volumes declined roughly 25% year over year in 2025. On the flipside, regional US lenders have proven more resilient, with Houston remaining one of the most active financing hubs in the sector - buoyed by an administration that has reopened federal leasing and unwound climate regulations. The gap left by European and Wall Street lenders is nonetheless too large for domestic banks alone to fill.

Credit funds and private lenders have absorbed much of that volume, closing faster and on terms banks can no longer offer. Large operators such as Jonah Energy have already financed acquisitions through ABS structures, including its acquisition of Tap Rock Resources in early 2025. Similarly, Diversified Energy financed its Canvas Energy acquisition through a $400 million ABS transaction later that year.

Reserve-based lending tied risk to reserves and commodity prices. Both lender and borrower could model the downside with reasonable precision, and the borrowing base adjusted predictably as those variables moved. Private credit works differently. The risk for the operator is not primarily the reservoir, but more so what the loan agreement permits. In the private credit deals we’ve seen, lenders are increasingly asking for far more than just a coupon - often including consent rights over capital allocation and preferred equity features combining downside protection with equity-like upside. A 200 basis point premium over SOFR may appear manageable in a financial model, but the associated consent rights and governance provisions can constrain capital allocation for years. Private credit lenders are effectively co-piloting the business. The rationale behind their involvement is reflected by the complexity of underwriting projects operating against a backdrop of geopolitical uncertainty, commodity volatility, and supply chain disruption.

Even though private credit has absorbed much of the lending retrenchment, it is not an unlimited source of capital and is facing constraints of its own. Middle Eastern sovereign and institutional investors have been withdrawing from U.S. private credit vehicles, reducing LP commitments across several of the larger funds. At the same time, most private credit positions in oil and gas offer no liquid exit, and that illiquidity is now being priced in explicitly through a liquidity premium on top of the credit spread, or in some cases causing transactions not to clear at all. For operators, the consequence is that refinancing risk has overtaken reservoir risk as the defining concern for O&G finance teams. An operator’s position now depends less on the quality of its assets than on when it raised capital and what it gave up in return. Operators that raised early and retained control over hedging, capex, and asset sales are in a strong position. By contrast, those that sacrificed flexibility to secure near-term liquidity may face more difficult refinancing negotiations, with less leverage over terms and structure.

Geography is also becoming a more important determinant of financing terms. Operators deploying capital into Africa and Latin America are often securing more favorable structures because lenders in those markets remain willing to finance large-scale energy development over longer time horizons than many Western institutions, particularly where governments and quasi-public institutions support strategic infrastructure buildout. Similar dynamics are benefiting downstream assets. Refining and gas infrastructure generate steadier, more visible cash flows than upstream production, allowing lenders to underwrite repayment against contracted or infrastructure-like revenues rather than volatile commodity-price assumptions. That matters to private credit providers, whose own investors increasingly scrutinize how and when capital can realistically be returned.

A question we are frequently asked is whether traditional reserve-based and asset-backed lending remain viable options for oil and gas operators. Based on financings we have seen close over the past two years, they do remain available for operators whose asset base can support traditional bank underwriting. What has changed is that those structures are no longer available as broadly or as predictably as they once were, and operators falling outside that category are increasingly turning to private and structured capital solutions. In transactions where we have advised on the financing process, we have often recommended running bank and private capital discussions in parallel. Doing so gives operators a clearer view of where market appetite truly sits before committing to a financing path and often improves outcomes by creating competitive tension among capital providers, helping keep final terms within commercially reasonable bounds. That said, feedback from lenders during our last week’s roadshow across major financing hubs in Europe and the U.S. indicates continued appetite to deploy capital through traditional lending structures.

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