A new type of oil and gas financing is booming | OilPrice.com

With banks withdrawing from financing oil and gas operations and other traditional sources of financing such as equity investment or reserve-based lending (RBL) facilities drying up, U.S. oil and gas producers are looking for a thriving market for alternative financing.

This is a Proven Produced Developed Securitization (PDP), where an oil or gas producer issues bonds in an asset-backed securitization (ABS) transaction. In other words, upstream producers use the cash from oil and/or gas production as collateral for the notes placed with investors.

Securitization of energy assets

The first such securitization of energy assets occurred in 2019, but it has quickly gained popularity over the past year as many private producers look to diversify their funding sources.

“Securitizations backed by oil and gas assets help diversify funding sources for companies that would normally have access to capital from more traditional sources, such as reserve-based lending (RBL) facilities, high-yield bond issuances or equity investing,” Fitch Ratings says. He said In early 2020 when this type of financing was quite new and the pandemic had not yet crushed oil demand.

The ratings agency noted in February 2020 that “the newly issued deals provide stable cash flow as depletion rates are somewhat predictable depending on well age and overall diversification.”

Even during the pandemic and volatile prices in 2020 and 2021, oil and gas advanced securitizations (PDPs) have proven to exhibit significantly lower volatility, “due largely to commodity price hedges and the structural features of the securitizations,” credit rating firm DBRS Morningstar He said in May 2021.

The performance of PDP securitizations remained resilient during Covid, despite high volatility in oil and gas prices and bankruptcies of operators during the pandemic, said Fitch Ratings. Transfer in September 2021.

“The required hedges on the majority of production volumes limit the effects of hydrocarbon price fluctuations on expected revenues. In addition, the production of PDP has low break-even costs, with the majority of capital expenditure costs incurred,” the credit rating agency said.

Energy ABS market booming

In 2022, the oil and gas asset securitization market is truly booming, with the value of ABS deals in energy having tripled as of 2021, according to data from Guggenheim Securities cited by Reuters. So far this year, private companies have sold to investors $3.9 billion in PDP securitizations, up from just $1.2 billion last year.

This year also saw the largest single secured financing for a US energy producer, backed by a portion of its producing assets, since PDP’s securitization financing deals began three years ago.

That was a deal in October for 750 million dollars Secured financing for natural gas producer Jonah Energy LLC, a Denver-based company operating at Jonah and Pinedale Fields in Sublette County, Wyoming. Jonah Energy successfully closed its first securitized financing transaction by offering a $750 million fully amortizing bond backed by a portion of its producing assets.

Jonah Energy’s assets and operations are located within the Great Green River Basin in Sublette County, Wyoming, and consist of more than 2,400 producing wells and more than 130,000 net acres located in the Jonah field and surrounding area.

“I am pleased to complete a long-term financing transaction that pays in full to RBL, which gives us a strong balance sheet to pursue the significant drilling opportunities that we have on our acreage and the strategic opportunities that may come our way,” said Tom Hart, President and CEO of Jonah Energy.

Guggenheim Securities, which was the sole structural advisor, bookrunner and underwriting agent for the offering, said Jonah Energy was the largest asset-backed securitization completed to date.

“This ABS transaction, which represents the largest PDP securitization completed to date and the third 144A organized by Guggenheim Securities for the energy sector, reflects the confidence of industry leaders and market participants in the appropriateness of energy-related ABS in the market,” said Anuj Bhartia, senior managing director on the team. Structured Products Origin” at the Guggenheim.

PureWest Energy, Wyoming’s largest natural gas producer, It has been closed successfully In August, a second asset-backed securitization — after last year — offered $365 million in asset-backed notes secured by a portion of PureWest’s natural gas-producing assets. The deal followed PureWest’s $600 million initial securitization in November 2021.

PureWest Energy expects to distribute the proceeds from the cash offering, along with excess cash on PureWest’s balance sheet, to its shareholders in the third quarter of 2022.

Oil and gas securitization offerings could be beneficial for both investors and producers, Daniel Allison, partner in energy finance with law firm Sidley Austin LLP, wrote last year in Hart Energy. Investors have a relatively predictable cash flow profile for PDP Oil and Gas, Allison says, so they — and the rating agencies — view production risk as an “acceptable variable.” Producers, for their part, can use the securitization of energy assets to either diversify their capital structure or take advantage of this alternative market when others are less favourable, according to Allison.

By Tsvetana Paraskova for Oilprice.com

More top reads from Oilprice.com:

#type #oil #gas #financing #booming #OilPrice.com

Leave a Reply

Your email address will not be published. Required fields are marked *