Show them the money

Author Manash Goswami, Senior Reporter

As if piercing complex layers of earth and rock to tap oil and gas deposits were not risky enough, oil and gas drillers must grapple with another daunting challenge: finding the money to fund their operations.

As if piercing complex layers of earth and rock to tap oil and gas deposits were not risky enough, oil and gas drillers must grapple with another daunting challenge: finding the money to fund their operations.

A 50pc plunge in oil since June has severely squeezed cash inflows for operators, stifling their ability to cover operating costs, everyday expenses like salaries and rent, and payments on the massive debt accumulated on the back of $100/bl oil. 

Cash-strapped producers are shedding assets, possibly opening a window for private equity investors to snap up distressed properties and marking their revival in oil and gas investment. This week Warburg Pincus said it is investing $500mn in a start-up oil and gas exploration company,  Independent Resources Management, which is targeting assets companies are eager to sell to help shore up their balance sheets.

Last week, Linn Energy signed a $1bn equity deal with private investor Quantum Energy to fund acquisitions and pay for the development of oil and gas assets. The deal allows Linn "to capture acquisition opportunities during distressed market conditions," it said.

From the start of the year, operators such as Whiting Petroleum, Laredo Petroleum, Antero Resources and Oasis Petroleum are issuing new shares to generate cash. The pace of new share issues has been so rapid that by early March, it was already double the quarterly average since the start of 2008 and it exceeded the total made in all of 2009.

Share and asset sales follow steep cuts in capital spending by producers such as Continental Resources, ConocoPhillips and Linn Energy as they reduce rig counts and focus spending on areas that offer the best returns.

For more information, please contact OilBlog@argusmedia.com

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