← Go back to All Blogs
Sign in to follow this  
Followers 0
  • entries
    5
  • comments
    6
  • views
    1,494

About this blog

Capital for small independents has been an issue since the downturn and doesn't appear to be abating even with $65-70 oil.  Banks have been less interested in providing much needed capital to these smaller entities.

When the oil market crashed in 2014, there were 177 bankruptcies as a result.  Why did they occur?  Simple... the banks lent the oil companies money based on their reserves, valued at $80-100 per barrel.  When the market crashed to $27 a barrel, the banks called the loans but the money was in the ground and everyone was upside down.

Needless to say, it was a bad decision all around; relying on a fractious commodity price to service a hard asset with a terminable interest rate that needed to be paid back come hell or bankruptcy. The result is the small to medium operator has no source of capital.  They're too small for the larger banks or private equity firms to be interested.  

Volumetric Production Payments, (VPPs), have been used prior to even the oil and gas industry drilling its first well... in the gold rush days to be exact.  It provides financing by using existing production to forward finance re-works, re-completions, PUD drilling etc.

The production is bought at a discount to the market and a strict delivery schedule is offered to the financial source and hedged.  Typical terms are 3-4 years at the end of the term, the producer gets his total production back.  Normal terms are for the producer to retain 40-70% of his existing production during the term.

There are about 9,000 independent oil and gas producers in the U.S and employ an average of just 12 people...this is a market niche that desperately need to be served.

Entries in this blog

 

Achieving High IRR's Financing Oil Deals

TODAY'S INVESTMENT GOAL:   How to achieve high Internal Rates of Return, (IRR), with a properly structured transaction based on existing oil and gas production … without the market risk of most oil and gas investments.  Can this be done?   Requirements to achieve the strategy and returns for discussion: Buy production at a reasonable discount Evaluate the production as to the operator’s capability to deliver what is purchased Hedge the

What if the Oil Business did this?...

What if the oil and gas industry could find capital without giving up large chunks of equity, dancing to a banker's tune or having to go out and raise capital in non-conventional methods? What if the price of oil didn't play havoc with every financing decision made?  Who can call the floor on prices?  Oil executives are handcuffing themselves to believe that higher prices are coming, try to second guess the market and are hamstrung by the proverbial 'paralysis by analysis.' What if we
 

Capital Markets... Dive in Now?

The recent market volatility has left investors and capital seekers seeking he same consensus: where does it end and what's the upside?  The age old question continues to perplex both parties.  I'm taking the position from both sides.. first as a former exploration company President who had sought capital from the banks, from P/E firms, mezzanine debt and from the public markets and secondly as a capital provider.  We currently manage substantial amounts of capital that are looking to deplo

Omnipresent Big Need for Capital... Alternatives?

Smaller producers who are finding it more difficult to secure bank credit, with many loans still under pressure, are seeking new ways to capture funding.  As prices are making it a bit easier to add to the balance sheet, versus $26 per barrel in recent times, new avenues for capital have opened up. We see the increased ability of 'non-bank' capital sources to serve these operators that have a large need for capital.  Reserve Based Lending, (RBLs), are certainly in transition and many smalle

KH

BlackLine Resources

 

Capital for Independents Take on a New Look

Capital for small independents has been an issue since the downturn and doesn't appear to be abating even with $65-70 oil.  Banks have been less interested in providing much needed capital to these smaller entities. When the oil market crashed in 2014, there were 177 bankruptcies as a result.  Why did they occur?  Simple... the banks lent the oil companies money based on their reserves, valued at $80-100 per barrel.  When the market crashed to $27 a barrel, the banks called the loans but th
Sign in to follow this  
Followers 0