How to raise capital for oil exploration
How can oil and gas companies attract investment for exploration?
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. If you and your team have a strong track record, you will significantly increase your chances of securing capital.
Listing your company
A recent article I read by the Oil and Gas Financial Journal claimed many small and mid-size energy companies have tapped the public equity markets in recent years.
In 2007 $16.1 billion in worldwide public equity deals were floated by energy companies in offerings of $200 million or less; there were 219 equity offerings of this nature (Source – Bloomberg). Moreover, some small and mid-size US energy companies tap equity markets in countries such as Australia and Sweden.
While issuing public equity can “jumpstart” a company, it is usually not the sole financial solution.
So what are the top pros and cons of bringing your company to market?
- Projects can be “jumpstarted” early on
- Potential source of “exit” funding for management and investors
- Provides exposure to public capital markets
- Stringent and expensive reporting and administrative requirements
- Often funding is not adequate to accomplish growth goals
- Much of management’s time is devoted to dealing with investors
- The market value for public companies is often far less than net asset value
Full article can be found here
Do you agree?
If you found this interesting you might want to see how Trap Oil managed their 2011 IPO here