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Paper Number 1020-G
Economic Factors in Bank Loans on Oil and Gas Production
Charles R. Dodson, The First National City Bank of New York, and John S. McGee, U. of Chicago
Journal Journal of Petroleum Technology
Volume Volume 10, Number 10
Date October 1958
1958. Society of Petroleum Engineers
As is now well known, oil producers borrow from banks for operating and capital purposes, including the development and
purchase of producing properties. Sound bank loans on oil and gas producing properties depend on a thorough analysis and
correct evaluation of numerous credit considerations. These can be segregated, for convenience, into five major groups:
management, engineering, legal, regulatory and economic.
All are important to banks. Heretofore, only management and engineering, and to a lesser extent, legal and regulatory
considerations have been popular topics for analysis. Purely economic considerations appear to have received too little publicity.
Consequently, our purpose here is to remedy this situation in part by the discussion of several of the important economic
considerations and to explain why we think they are important. However, before proceeding we should first review the nature
and requirements of commercial banking in order to understand why lending officers must consider these economic factors.
Banker's Point of View
Bank officers are prudent and enterprising business men, capable of evaluating potential loans in the light of the bank's lending
and liquidity policies. Bankers respect and honor the requests and needs of their customers who have established banking
relationships; i.e., those who have used credit, deposit and other bank services. In the case of loan applications from new
customers, the banker is interested in the long-run potentiality for a growing relationship i