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 deploy into the energy sector, so being on both sides in a past and current life, I speak from experience.
Oil and gas companies that seek us out for capital come in a number of flavors and sizes. Typically, they are smaller entities, or juniors. This is our financing niche. Their needs are the usual: drill PUDs, re-work, acquire non-cores, get a leg up on OPEX and generally seek growth in fractious times. In nearly every case, the banks are exhausted as much as the juniors are. These companies are far too small for the P/E firms to get involved and the old 'Third for a quarter' deal won't cut it. What to do?
As a capital provider, we seek to obviously entreat the best companies we can to provide this dearly needed money. Some have said that the smaller deals that come in to any facility seeking capital are the deals no one else will touch. We disagree. The old saying, "Oil and gas doesn't care who owns it,' serves a point. Economies of scale are persistent relative to size. Nearly all the companies we review are sitting on oil, and what better place to produce from than an existing field? Have the production and a good development plan? Are these good oil people with a solid history of exploration and exploitation? We take these into account, among other things as we review and allocate due diligence resources to determine if the underpinnings are there and there's sufficient existing PDPs to support the capital raise over a term.
A word about the raise.. it's non-recourse, not a loan, off balance sheet, no equity take out and there's no back-in after payout. Oil companies seek a better, more efficient way to utilize and pay back capital and there is a better way than the old tried and perhaps not so true way...
In these times, we feel a floor has been reached and tested market wise. Wise firms can access wise money now, versus looking for it when the recent 30% drop has been recovered and capital costs and service costs will likely erode portions of this gain.
Companies can't afford to hand wring now... it's time to set up for the future and plan capex budgets now.