Luke Daniels, Core Well Commercial Capital, discusses some of the recent international oil and gas moves and how that will impact Shale Play USA. Daniels cites examples of the Chinese market, private equity firms taking control, the downturn and how companies are reinventing their business models.
“Traditionally you could follow a linear growth model for your business, however,” Daniels said. “This has changed to a need for an exponential growth pattern. This is extremely difficult for small to mid-size companies that just do not have the endless capital to compete. So, you have two options boot strap it or find an alternative source of funding, which is what we do.”
The interview transitions into non-traditional funding and traditional funding during these times of uncertainty and crisis. Daniels said each company or individual is specific to their needs and obstacles, however, generally speaking, Daniels has found their criteria are much more lenient, considering their history and the future investments of the company.
“With a traditional loan you cannot consider future revenue model that will be created with the capital from the loan,” Daniels said. “Therefore, you must consider your current revenue model to know if the business can afford the loan, and with no consideration of additional revenue you can never receive a loan. With this circular dilemma it is impossible to get a loan based on a future model, therefore there use to be only one options PE firm.”
Daniels also explains why venture capital and private equity firms are taking control of areas of the energy marketplace.
For example, if oil drops 60 to 40 $/bbl. A PE firm sees losses and their solution is to stop the bleeding. However, what if your OPEX breakeven is 30 $/bbl lower,” Daniels said. “Meaning you can continue operations and be profitable. Not only can you remain profitable you can perform drilling and completions operations at significantly lower cost due to market conditions. This allows for you to reach a payout point much faster.
The Crude Life Podcast can be heard every Monday through Thursday with a Week in Review on Friday.
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