Strategy, Technology, and Current Issues in the Oil
Energy Overview / Current Issues in Energy
Susan Smith Nash, Ph.D.
Current oil and gas exploration / production
efforts hampered by insufficient cash / undercapitalization.
Operations are expensive, require ongoing drilling, completion,
stimulation, restimulation, and infrastructure development, so
they are often undercapitalized. Revenue flows are often
insufficient to cover actual cash/operations needs.
It has been very challenging to maintain sufficient capital in
shale plays because of the need to drill numerous wells in order
to hold the acreage before the leases expire, and also because of
the rising costs of drilling horizontal wells, conducting
hydraulic fracturing, and managing water issues (sourcing,
processing, hauling, disposal). Further stretching budgets
are “continuous development” clauses, which require operators to
continue to drill a block of acreage rather than waiting to go in
and in-field drill. Finally, steep decline curves and the need to
re-enter the well and restimulate it (re-fracing, for example),
further challenge operators and their capital resources.
For many companies, undercapitalization represents a severe
problem. For others, the undercapitalization of other
companies presents an opportunity. Companies with cash and/or
credit are able to purchase producing properties or leases from
companies finding themselves in an undercapitalized situation due
to accidents, the size of the play, rising costs, obligations
arising from lawsuits (as in the case of the Macondo accident).
Examples include the following:
• Companies purchasing “distressed properties”
from companies that cannot meet their obligations due to cost
overruns or financial difficulties of working interest partners.
• Companies purchasing properties from companies
that are forced to sell in order to raise cash to meet
obligations. An example of this is Apache (see article).
• Companies purchasing properties because
companies cannot meet their drilling obligations, or find
themselves in extreme cash flow binds. An example of this is
Article: Apache, known for buying undercapitalized assets
from oil majors and making them produce more, has made several
sizable acquisitions in recent months.
U.S. Shales and Resource Plays Can Lead a Resurgent U.S. .....
Still many companies too under capitalized to develop shale
Financing for Undercapitalized Companies
What does it mean for an energy company to be undercapitalized?
How does undercapitalization result in problems for some
companies, but opportunities for others?
Susan Smith Nash, Ph.D.
* 2013 *