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How to get an Oil and Gas Project Financed

It is relatively easy to get financing for an income producing mining operation. Traditional Banks and Private Lenders in most cases would not have a problem in issuing a loan if a project has a sufficient cash flow coverage and an adequate value of underlying collateral.

With the highest estimated risk a start-up non-income producing mining project becomes a different kind of play. The most important point for a project like this is to have assets to collateralize against: in-ground assets.

Experts Agree that getting financing for an in-ground assets project is the toughest one among all the categories and varieties of mining projects, such as oil, gas, coal, iron or any other mineral that has to be extracted out of the ground. Because of the historically very high risk of failure it is very hard to get a project like this funded, but with a right approach and business plan, principals shall be able to dramatically increase chances of getting the project funded.

The first and the most important step in this process is to get an independent third party Engineering Report from a reputable firm. Many projects that come to Universal Business Structured Solution have only Geological Reports. These reports considered as a good starting point for reviewing a project, but they are not sufficient for a sophisticated lender or investor that would require a complete business plan with financial models.

Any mining project that needs financing must be shovel ready. A detailed schedule of all the permits and licenses has to be provided. Getting pre-development financing for a project without this information in most cases is unrealistic, but Bridge Financing is possible in some cases. Bridge Financing is an expensive temporary solution and must have two things:

a. Proved Value of underlying collateral

b. Defined exit strategy-take out financing in place.

Detailed credentials on the management team have to be provided that would prove the ability of the management team to successfully start and operate the project.

Viable project with a sufficient Engineering Report can be funded with Debt, Equity, Mezzanine. Joint Venture Strategic Partner can also be brought to the table. If principals do not have any skin in the game a good project can get up to 100% of required capital, but principals have to be ready to reasonably accept a dilution of ownership and control.

Mining industry's companies have the following classifications:

1. Upstream Companies. Exploration & Production companies that focus on finding and extracting minerals and resources from the ground.

2. Midstream Companies. Companies that transport oil, gas, and other commodities to companies that will sell them.

3. Downstream Companies. Companies that refine and market commodities and turn them into something useful such as jet fuel, and then sell these commodities to customers.

4. Oil Field Services. Companies that provide services to the payers involved in the oil industry. Services include: maintaining oil fields, repairing broken spots, providing security, etc.

Each particular company in any of those field will have its own specific requirements in order to get funded.

If Geological Report shows indication of substantial in-ground assets a Strategic Joint Venture Partner can be brought to the table that would do its own due diligence and order its own Engineering Report.

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About the Author

Yury Iofe, Universal Business Structured Solution
Princeton, NJ 08540

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