Securing Capital in the Oil & Gas Industry – 6 Questions to Ask Yourself
Help Navigating the Challenges of Securing Capital in the Oil & Gas Sector
One of the most significant factors in the oil and gas industry in 2023? Access to capital. With the global oil and gas sector continuing to evolve, securing the means necessary to remain competitive is more important than ever. Securing capital is a critical part of any successful oil and gas venture, and it’s important to consider a variety of factors before committing to a financing arrangement. Here are some key questions to consider when securing capital in the oil and gas sector.
I need to raise capital — where do I start?
Whether you’re talking with lenders for debt capital or looking for equity investors, there are certain things you can do to put your company in the best position to attract that capital you need. In this vein, we recommend approaching numerous capital and service providers who have consistently done business with energy companies. The energy industry is highly cyclical, but it looks at potential government headwinds regarding new regulations and more oversight on providers of capital to the energy industry.
While it’s undeniable that there is a lot of investor focus on the renewable energy sector at the moment, it would be a mistake to think that’s the primary factor they consider. Here are additional deciding factors for most lenders:
- Presenting a robust business plan
- Well-rounded management team
- Strong balance sheet
- Demonstration of commitment to proper cash flow management
- Strong returns on invested capital
The current quality of your balance sheet and your grasp of cash flow management paints a picture of your company’s future. Evidence of financial strength helps assure lenders and investors that your company will be able to weather challenges, seize opportunities and keep pace with the competition.
What are my funding options?
The oil and gas industry offers a wide range of financing options, from traditional banks and venture capitalists to non-traditional sources like angel investors, crowdfunding platforms, and government entities. It’s important to consider all available options to ensure you get the best business deal.
Note: Oil and gas investments can be high-risk, high-reward ventures, and it’s essential to clearly understand the potential rewards and risks associated with any particular investment. Consider your risk profile carefully and choose appropriate investments for your business.
What are the terms of the deal?
Once you’ve identified potential sources of capital, it’s important to understand the terms of any deal you enter into. Make sure to read the fine print and ask questions about any potential loopholes or inconsistencies.
What are the tax implications?
Taxes can significantly impact any investment, so it’s important to understand the tax implications of any financing arrangement you enter into. Make sure to speak with a qualified tax professional to ensure you’re accounting for all applicable taxes.
How do I balance ESG and raising capital?
Balance is easier to achieve when environmental, social and governance (ESG) is baked into overall corporate strategy. Implementing an ESG program is an avenue to raising capital and maintaining stakeholder support and an increasingly strong indicator of financial stability.
The capital markets are zeroing in on ESG initiatives on a broad scale. It’s an area attracting dollars, with many reports showing that companies with solid ESG programs are seen as carrying lower regulatory, legal, reputational and political risk than companies with low ESG ratings. This area is under the spotlight, with regulatory bodies such as the SEC creating ESG task forces to ensure proper governance.
How will this affect my business?
In addition to the financial considerations, consider how the investment will impact your business. For example, will it allow you to expand your operations or hire additional personnel? Will it open up new markets or create new opportunities? Finally, consider all potential impacts before committing to a financing arrangement.
The oil and gas sector is an ever-evolving industry and securing the capital necessary to remain competitive is an integral part of any successful venture. Consider all the questions outlined above before entering into any financing arrangement, and thoroughly research any potential opportunities to ensure you’re getting the best deal for your business. Contact an Adams Brown advisor with any questions or discuss future planning.