From traditional oil and gas hot spots such as Texas and Louisiana to new locations such as Pennsylvania and Ohio, the past several years have been revolutionary for those in and around the energy sector. With the discovery of shale oil deposits far underground, we as a nation have found a new source of energy. This new source does not rely on the importation of oil and gas. A dozen or so years ago, it was unheard of to think that the United States could become self-reliant in terms of oil and gas sourcing. Today, however, it seems like a real possibility.
The following facts on recent oil and gas discoveries show how ground-breaking this news is:
- The S. Energy Information Administration estimates that about 9.35 trillion cubic feet of natural gas was produced from shale in 2013.
- In the Weld County Colorado region, the Niobrara shale finding is currently producing about 361 Million Barrels per Day since January 2012. This is expected to double by 2019.
- The Utica shale finding in the Pennsylvania and Ohio region is estimated by the U.S. Geological Survey to contain 38 trillion cubic feet of natural gas. That equals to approximately 940 million barrels of oil and 208 million barrels of natural gas liquids that are “recoverable.”
- In Wyoming alone, $4.56 billion of crude oil was transported by truck in 2011.
Needless to say, that’s a lot of resources for the oil and gas industry.
Financing oil and gas projects has become its own hurdle
As impressive as those numbers are, the road to energy independence is not an easy one. This new oil and gas discovery comes with its own set of challenges. These challenges include: oil and gas funding, labor, transportation, construction, politics, regulation, and environmental concerns.
High costs and expenses continue to stall oil and gas production. Reason being , it that shale oil extraction is far more expensive and complex than traditional drilling. To understand in depth, consider the following:
- Hydraulic fracking, the intricate process used to obtain shale oil buried deep underground, requires expensive equipment, permits and licenses and a surplus of workers, scientists and engineers to complete the excavation.
- Trucks and freight cars line up by the dozens to pump the water and other liquids that are needed for the fracking process. Other trucks stand by to haul the oil and gas away.
- In many locations, pipelines can’t be built fast enough to move the oil itself causing backups and slowdowns. Lack of sufficient oil and gas funding, as well as local and national politics, stall pipeline construction.
With so many players needing to come together for a successful drill to occur, much oversight, coordination, and financing is needed. Securing sufficient financing for oil and gas projects of these magnitudes has become a recognized secondary problem in the industry causing a frustrating, hurry-up-and-wait pace.
Banks view oil and gas loans as a risky investment
Part of the issue with oil and gas financing is banks view it as a high risk endeavor. Oil and gas is a peak-and-valley enterprise, which is less attractive to traditional banks. Take this past year (2015 & 2016) as an example for the valley time due to competition in the global markets. Also, the chances of accidents and discovering less oil than forecasts call for dissuades some lenders. Others are reluctant to provide oil and gas project financing to smaller companies. This impacts smaller contractors, subcontractors, drillers, pipeline construction and transportation companies with non-existing or poor credit scores.
Even big companies seeking oil and gas loans are slowed down by application paperwork and bureaucracy. When one contractor is delayed in receiving its oil and gas loan, it has a ripple effect and slows down the entire production schedule.
Oil and gas & freight factoring to provide much-needed capital
The lack of adequate oil and gas financing was addressed in the recent Platts Pipeline Development and Expansion conference in Houston, Texas. In short, the conference asked that alternative, non-traditional financial institutions such as invoice & freight factoring companies step up in offering oil and gas companies funding options. This includes transportation factoring for the trucking and freight industry that actually transfers the stuff. In turn, it asked oil and gas companies to be more receptive to receiving alternative funding from these types of institutions.
Though oil and gas factoring may cost more in the short run than traditional band loans, businesses can secure capital quickly – in a matter of days — by factoring receivables. Traditional business loans typically require weeks or more of waiting. Even though companies may have to pay more initially for their capital, it can pay off in the long run by minimizing delays in the oil production cycle. Moreover, alternative financing options such as oil and gas factoring do not require a credit check. They are accustomed to providing funds to those with less than perfect or no credit histories.
Despite political setbacks and financial considerations, the shale oil and gas boom in the USA market doesn’t look to be going anywhere anytime soon.