As recently as a year ago, sources of capital for U.S. oil and gas producers were...
Jon Shapley, Houston Chronicle / Staff photographerAs recently as a year ago, sources of capital for U.S. oil and gas producers were extremely scarce and only came at a premium. Today, with oil prices mostly hovering around $100-per-barrel, the outlook is dramatically different. Now producers have many options for raising the money they need to ramp up operations or refinance to reduce debt payments.
Confronted with many choices, a company should consider its own fundamentals and objectives. Many debt-financing opportunities have differing maturity timelines and repayment options. Additionally, some lenders will tie up free cash flow for required debt repayments, while others may allow greater flexibility on repayment before maturity. Some may allow a borrower to pay dividends to investors with available cash from operations.
Another new source of capital involves securitizations of producing wells. By bundling many different oil and gas producing assets and hedging price exposure, these structures can achieve investment-grade ratings for notes secured by oil and gas assets, and they attract a new investor class. This new product has become a useful tool to replace all or a portion of an existing loan from a traditional big box bank. Securitizations also frequently provide enough proceeds to fund growth or pay dividends to shareholders. In addition, these companies reap the benefits of any improvement in performance or unhedged pricing from the securitized assets.
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