Financing Snags and How to Untangle Them

[BlackLine Resources + 12]

Small cap oil and gas producers run into snags as they seek funding to either continue to grow or merely stay in business.  Opportunities abound in the alternative investment sphere, but that doesn't automatically translate into done deals.

There are many projects that cry out for a lifesaver to be thrown to them; JV deals, a third for a quarter, back in, overrides, carries etc... who really wins? The company IF they hit or the investor IF the producer hits or neither? I've seen more spreadsheets than wells in the Permian with tremendous value baked in... optimistically of course, but how many even come close to hitting these happy numbers? Very few.

Funding these ventures for the smaller producer is an exercise in futility.  Banks? No.  Private equity? Again no... too small.  Private investors?  Selling unregistered securities is a dangerous place to live.  Convincing broker dealers to play? Umm... 

This should be a great time in the cycle; there are many projects where there are few alternatives open that may have been bankable before but aren't now. 

For the producer that has proved, developed, producing assets with demonstrable development upside, there is capital in goodly amounts to be captured.

Mezzanine shops typically offer secured loans with a significant equity kicker.  Why not keep the equity in  your firm, sign on non-recourse, pay no bank debt and secure the capital the firm needs?  If this sounds like a 'come on', it's not.  Producers struggle everyday with existing wells to keep them productive, have wells that would/could/should be worked over, PUD locations that need to be drilled and the money isn't there.  Leveraging the existing production to solve these issues should be paramount in producers mindset.

The producers are sitting on good assets, leverage the PDP element, get the CAPEX needed and grow the company instead of waiting for the commodity prices to bail out the firm!

Responding to this article is a great start...