How can oil companies attract investment?

As small caps start to move from exploration to production very few have the necessary capital to bring their resources to production without further cash injections and as more small caps expect to use debt facilities in the near future there is a strong need to fully understand the challenges faced when securing debt financing.

So how can oil and gas companies attract investment?

Proven track record

Small caps, especially start up companies, should have a proven track record of success within their senior management team. Past successes and aligned management goals will ultimately put investors and ease, they want to proven and repeatable success

Proven reserves

Operators need to have significant proved reserves, many debt financing facilities are borrowing base facilities which means the amount borrowed is calculated against the value of proven reserves. Oil prices and quantity of reserves can impact on these agreements and need to be seriously considered before entering into them

A major number of small caps believe the Eurozone crisis has affected their business and this highlights one of the major issues when trying to secure debt facilities – the financial markets. If the economy is bad and oil prices are low there is little chance of securing debt investment, no matter how strong your management team is or how many proven producing reserves you have..

That’s when small caps need to think about other sources of investment from private equity backers or shareholder investments.

If you found this interesting you might want to see how Trap Oil managed their 2011 IPO here