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Independents...Yardsticks for Successful Capital Sourcing

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One of the most pressing issues for independents is funding and harvesting inventory that still has producible oil and gas while not 'selling the ranch' equity wise or begging banks back.  Sounds simple enough, but let's look at the underpinnings of how capital looks at the independent...

First off, the investor is in the business to make money; nothing earth shaking there.  The focus is entirely on return of their invested capital with the producer.  They are not in the business to fashion their investment around any concern other than long term profitability... any thing less is oil patch 'noise'.  Every decision made by the producer, drilling, re-working, PUDs, buying land is looked at as a full-cycle return of that money.  How can an independent become lean and efficient and create value for themselves but also convince the funder they can operate within the confines of cash flow?

The producer must prove up a palate of disciplined, measured and positive growth projections.  What is the current production net of royalty burden, what the development plan is: low hanging fruit of re-works, re-completions, infill / PUD drilling and the bigger scale of opportunity the acreage presents?  What are the CAPEX requirements measured out over the time it takes to produce meaningful returns?  Will these efforts produce cash flow positive results and over what time horizon?  Debt to contend with? 

Deals and investors come in all shape and sizes.. The independent has been squeezed into fewer funding opportunities and possibly resorted to capital sourcing that may have proved to be onerous.  Researching the sampling of deal makers and breakers has become an interesting art form and yet, there are many opportunities for the independent to secure capital without giving it all away and end up being the 'low man on the totem pole.'

Solid, innovative and respected financing sources are there with an abundance of capital and stabilizing price decks are allowing them to be more aggressive.  Banks are there for the 'big boys' while other financing opportunities abound that are not bank debt, non-recourse with no equity take out.

We'll explore further in the coming weeks.



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