Abstract

"Financing Small Independent Oil Companies -- The Do-It-Yourself Approach" is a discussion of the challenges and difficulties that small independent oil companies in Saskatchewan and Western Canada face in ra1sing capital to finance their operations, and discusses the innovative approaches that are necessary for these companies to survive.

The paper briefly reviews the state of the oil and gas industry and discusses the impact recent changes have had on the ability of oil companies to raise funds and on investor confidence. Special emphasis is placed on the problems of small oil companies who have had difficulty accessing traditional sources of venture capital from financial and investment institutions. The small oil company is facing increased competition for the non-traditional sources of capital.

Potential sources of non-traditional capital are outlined, and stress is placed on the importance of the small oil company pursuing these capital pools and developing unique and creative financing alternatives in view of the prevailing colonial attitudes of banks and investment houses. Practical information is provided on how a small oil company can put its case to the available capital pool, from the initial approach, presentation and followup through to establishing partnership arrangements. Ground rules and guidelines on how to achieve and cultivate investor confidence in the small oil company are presented, with an emphasis on particular management and corporate attributes necessary for the hands-on, do-it-yourself approach.

An investor profile is provided, stressing the importance of understanding the investor's pointof- view and requirements and suggests ways these requirements can be accommodated.

Responsibility for the on-going financial struggles of small oil and gas companies falls squarely on the shoulders of large financial and investment corporations. Historically these institutions have preferred to draw on Saskatchewan investment reserves to generate commissions and to finance high-risk development elsewhere.

The paper calls for a change in the colonial mentality of eastern head offices. It highlights the need for small oil companies to continue to lobby for recognition and to implement an educational campaign designed to achieve improved access to traditional, as well as nontraditional pools of investment capital.

The Purpose

This paper has a practical message for small oil companies operating in Saskatchewan, although the information contained within will be useful to small independents operating anywhere in Western Canada. It examines recent changes in the industry and the impact these changes have had on investor confidence and on the financing strategies of oil companies.

This presentation will concentrate on the small oil company. For the purposes of this paper, Small oil companies are defined as those companies producing 500 barrels of oil a day or less. The information is also primarily tailored to those small companies who are public or who are considering going public. Companies choosing to remain private may well benefit from the information and the discussion of financing options but, by remaining private, limit themselves to three sources of capital:

  • internally generated funds;

  • deals arranged with private investors

  • which carve out a small interest for the company; and

  • debt financing through the banks.

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