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Financing upstream oil and gas

With funding of hydrocarbons exploration and development under the ESG spotlight, the firm's leading oil and gas experts outline the financing options for E&P companies and how to access them.

The energy transition is having a significant impact on oil and gas financing. In the UK, investors and lenders are responding to public pressure to reduce fossil fuel extraction, the government’s legally binding 2019 commitment to achieve ‘net zero’ greenhouse gas emissions by 2050 and the August 2021 IPCC Special Report on the impacts of global warming of 1.5°C.

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Continued funding for oil and gas projects is currently consistent with the UK’s (and wider global) energy transition objectives, in that conventional forms of energy are needed to underpin the shift  to lower-carbon alternatives and to sustain production of materials derived from hydrocarbons.

It is also imperative that oil and gas companies are funded to invest in technology to minimise emissions  from production activities.

Consequently, the oil and gas industry continues to require significant amounts of capital.

Some investors and institutional lenders have opted to exit oil and gas completely, but many remain committed to the sector with the proviso that oil and gas producers must demonstrate good ESG practices and a commitment to operate as sustainably as possible.

While this means E&P companies need to dedicate resources to demonstrating sound environmental credentials and think more broadly about the impact and legacy of their operations, it has also spurred the development of a range of sustainable finance products to complement traditional financing options.

Fieldfisher's new guide covers:

  • Equity financing (including public markets, equity lines of credit and standby distribution agreements, convertible loans and SPACs);
  • Private capital (including private equity, sovereign wealth funds, strategic corporate investors, venture capital, family offices and earn ins);
  • Debt financing (including project finance, development finance institutions, export credit agencies, reserve-based lending and sustainability-linked loans);
  • Production based financing (including pre-export financing, prepayment financing, streams and royalties); and
  • Nordic bonds.