For the last century, the oil and gas industry has witnessed an age of key investment. In the year 2013, the sector had a spending of $700 billion (Raymond, Deming, & Nichols 2007). Compared with other industries, the oil and gas industry has had an increased appetite for capital. However, it should be noted that the sector has been comparatively conservative with respect to its financial configurations (Inkpen & Moffett 2011a). The article below analyses the applicability of financing configurations for oil and gas project in the UK. Through this, diverse and appropriate funding options for the venture will be determined.
In response to global political and financial instability, the oil and gas industry should expand their choices of funding (Inkpen & Moffett 2011b). The UK project, just like other projects, can source their funding from equity, bank loans, and project finance (Moylan 2015). The industry can source its funding through equity. Equity sourcing is habitually the primary choice for pure-play exploration firms. As such, these companies lack stable resources but offer a return of investment if the exploration is successful. Equity can be in private or public forms.
With respect to public equity, stockholders purchase stocks of publicly traded firms. As such, the above is realised when a private corporation goes public and opens its shares to the masses. The procedure enables the company to raise resources. Concerning private equity, stockholders negotiate with the holders of private businesses with respect to how much investment will be devoted and how much proprietorship will be offered in return. The above may be realised using venture funds, leveraged acquisitions, growth capital, or mezzanine reserves. Using individual wealth or other funding sources, shareholders may possess a proportion of or obtain absolute control of the whole corporation.
Equally, the oil and gas industry can source their funding through bank loans. In the last few years, public equity funding arena was characterised by tight protocols. Because of this, the industry’s appetite for bank loans increased. Nevertheless, restraint on risk management and the requirement to deliver a suitable yield has obligated banks to tighten their loaning protocols. The above changes have affected small and medium-sized borrowers. Based on this, the UK project should consider other sources of funding before seeking bank loans.
The oil and gas industry can also source their funds through project finance. Power and utility industries have utilised this form of financing compared to the other sectors. Volatile and less stable future revenues characterise the oil and gas industry (Sanda & Owoeye 2002). The transportation, infrastructure, and communal concerns related to the huge size of oil and gas projects have made attaining time, budget, and quality objectives harder than ever. Based on these illustrations, project financing is less appealing compared to equity funding in oil and gas industry.
In conclusion, it should be noted that equity funding is the most appropriate means of funding the UK project. However, in the future the sector needs to diversify their sources of capital to ascertain that adequate and proficient funding is accessible to finance its projects.
References
Inkpen, A & Moffett, M 2011a, The Market For Crude Oil, PennWell, Tulsa, Oklahoma.
Inkpen, A & Moffett, M 2011b, Financing And Financial Performance, PennWell, Tulsa,Oklahoma.
Moylan, J 2015, Oil Discovery near Gatwick Airport ‘Significant’. Web.
Raymond, L, Deming, C. & Nichols, M 2007, Hard truths: facing the hard truths about energy. Web.
Sanda, M & Owoeye, J 2002. Alternative sources of funding for the oil and gas industry, PennWell, Tulsa, Oklahoma.