Founded in 2011 by Boris Ivanov, GPB Global Resources is an innovative company that is breathing new life into the resource extraction sector. The company, which operates in a wide range of countries in Africa, South America, and the Middle East, employs more than 4,000 people around the world and provides state-of-the-art technology to regions that do not have the in-country resources to leverage such advanced technological assets.
GPB Global Resources is also dedicated to enhancing the lives of the people who live in the communities where it operates. For example, according to Business Matters, in 2019, it sponsored and participated in the planting of 1,000 trees as a part of the Ethiopian Tree Planting Program. In addition, the company has invested in educational and medical resources for local communities, as well as in training for animal and human health workers to help reduce the instance of epidemics and other health issues.
As an expert in resource extraction, GPB Global Resources offers the following services: project operatorship, consulting and engineering services, consulting and accounting services, and IT services. Noting its services, the company is highly qualified to provide insights into the future of oil financing.
The Evolving Energy Sector
The energy sector is evolving - and it is not just due to the increased focus on renewable energy sources. As World Finance reports, among the factors driving the change are insufficient pipeline infrastructure, calls from investors for lower carbon emissions, diminishing commodity prices, and political pressure.
As a result, of these changes, experts predict share divestments from fossil fuel projects, as well as even more cuts to institutional funding. Yet despite the push for diversification to include more renewable energy sources, the demand for oil and gas still remains high. This is in large part due to the growth of economies in Asia and Africa, which are driving demand.
Financing Is Becoming More Challenging
One of the most important factors affecting the oil and gas industry is the drastic reduction in financing from banks. This primarily impacts smaller players. Reuters reports that the largest lenders from the banking sectors - including Wells Fargo, JPMorgan Chase, and Royal Bank of Canada - have adjusted their expectations for oil and gas prices down. They have also slashed their estimated valuations of oil and gas companies' reserves - the same reserves against which those companies were accustomed to receiving loans. For smaller companies, it is becoming challenging to find other means of financing, especially since the issuing of bonds or stocks holds little promise due to many investors being wary after a long period of time of poor returns in the U.S. shale sector.
However, reduced lending can also impact larger companies. According to World Oil, even Chesapeake Energy Corp., which was once a premier producer of natural gas in the US, warned in October 2019 that bankruptcy was a very real threat for the company. Additionally, some companies are dealing with debts they entered into during more favorable times. At the same time, some producers have already exploited their best locations and are now forced to turn to other, lesser-quality sites, while others have been experiencing a loss of performance due to the fact that they are drilling their wells in close proximity to one another.
Looking Ahead to the Future of Oil and Gas Financing
Despite these challenges, investment and capital injections are crucially important to the operation of oil and gas companies. The International Energy Agency - or IEA - estimates that between 2012 and 2035, almost $20 trillion needs to be invested in the global oil and gas supply.
To attract viable investors, oil and gas exploration and production companies need to present a compelling business case, project and achieve interesting returns, and design innovative and flexible financing packages.
Fortunately, new financing options are appearing. Project partners, the bond market, export credit agencies, and private equity firms are all among the entities showing an interest in oil and gas. For example, in 2018 almost all of Prequin's activity was driven by 77 oil and gas funds that together raised approximately $89 billion.
Governments Can Facilitate Oil and Gas Exploration
It is also important to appreciate the role that governments can play in the financing of oil and gas exploration. First of all, they have the potential to increase state investment in oil and gas projects. At the same time, when governments offer incentives to minimize the risk associated with exploration and establish clear fiscal and regulatory regimes, they can greatly enhance the appeal of investing in this sector. Measures governments could take include offering public-private partnerships, agreeing on advantageous development rights, and licensing onshore and offshore exploration blocks.
The Importance of Africa in the Future of Oil and Gas
According to Deloitte Insights, 7.5 percent of global oil reserves and 7.1 percent of global gas reserves are on the African continent. The demand for oil here will increase by 3.1 barrels per day in the next 20 years due to the rising demand for LPG as cooking fuel and the dramatic growth of the car fleet.
However, the majority of African gas projects are greenfield and have large capital requirements. To make matters worse, most African countries lack the pipelines and infrastructure to adequately transport and distribute gas. Consider the following statistics from The Africa Report:
Over the next 10 years, LNG projects will require a minimum of $80 billion in investments, and pipeline infrastructure will demand another $20 billion.
Taken as a whole, financing for the African energy sector totals a mere $8 billion a year.
As such, it is critically important for multinational oil and gas companies, as well as for national and smaller ones operating in the region, to understand the continent's available and emerging financing options. It is also essential for them to be able to accurately project an ROI for potential investors.
In line with the rest of the world, new sources of financing are emerging in Africa. For instance, options for financing that smaller producers in this region can pursue come in the form of carry loans from large, international oil companies - or joint ventures with larger oil producers. Other alternatives include Chinese financing, locally syndicated bank lending, multilateral lenders, and development finance institutions.
Oil and Gas Companies Need to Become Leaner
In the current economic and political climate where a range of different factors are having an impact on the oil and gas industry, oil and gas producers as well as investors need insights into how best to finance projects that guarantee good returns. To do this, overall, oil and gas companies will need to become more competitive, as well as leaner, while investors will need to be more open to innovative methods of financing.