How can “small play” oil & gas International SMEs raise less than US100M in funding?

The international oil and gas industry is highly capital-intensive and requires a lot of upfront investment for exploration, development, and production. Small play oil & gas companies may not have enough cash flow or assets to secure loans from local banks or attract equity from U.S. investors.? Local banks in Africa and Latin America want to do larger transactions, more than US10”m. They don’t want to do deals of US30-50m.? Non U.S. SMEs ?may also face higher interest rates and fees due to their perceived higher risk profile.

We talk about non-U.S SMEs because the theme of geopolitical risk and political instability is used to discourage investment in countries that have both. But large multinational corporations have operated successfully for years in all countries regardless of their stability status. Some people would even say that countries with political instability and war are more profitable to operate in. We are not advocating such a message here in regards to war being profitable.

The truth is however, that political instability and geopolitical risk are just risk. Risk can be mitigated. The greater the risk, the greater the return. This is the fundamental principle of capitalism.

Non-U.S SMEs that want to raise funds in the U.S. can use mitigation and communication strategies to successfully raise funds.? This calls for upfront communications and building relationships prior to the need for capital.

As the global financial system becomes more increasingly transparent those with the best upfront engagement will win.

This article explains why non-U.S. owners of small play international oil and gas companies should use a International Private Investment Fund.

Small play oil and gas companies are flagged as high compliance risk by the compliance departments of private banks and US private banks in particular. Many US investors and private banks are not interested in investing in international non-U.S SME businesses.

International SME oil and gas businesses in Latin America, and Africa are unable to access financing from local financial institutions for less than US$100 million. Local financial institutions find dealing with owner managed small play oil and gas companies to be non-profitable. The size of the transactions and the amount of money involved, just does not generate enough profits for large banking institutions, and these regions of countries.

Many “small play” Oil and gas companies are therefore likely to seek to raise funds from higher net worth investors and accredited investors. The U.S and Canada offer the largest most dynamic pool of accredited online at worth investors.

The problem is, however, that many US accredited investors, their advisers, and compliance department of US private banks, view small play international non-US SMS, as presenting high compliance risk. Investors perceive a higher potential risk of fraud and lower levels of investor protection, because the local operating company of the alternative investment fund is based outside of the US legal jurisdiction.

The three objectives can be met by international estimates using alternative investment funds to raise money from accredited investors in the US.

What is an International Alternative (Private) investment fund?

An international alternative investment fund is an investment firm with a regulated asset manager. A regulated asset manager is the company that the owner or the operator is using to manage the funds that are deployed into the international island house project.

The management company or the fund manager company is regulated. This means it has acquired a license from a regulatory authority to act as a fund manager of an investment fund. The fund manager has to do a quarterly reporting to the regulatory authority. The fund manager also has to hire an independent compliance firm to assess continuously compliance risks, and do compliance reporting. The independent compliance company is obligated to report instances of money laundering if there are suspicious of such activities.

Why International SMEs should use AIFs to gain access to capital.

Banks do not treat regulated investment firms, the same as private or unregulated companies. Regulated investment funds are assumed to do their own compliance, and therefore banks view regulated investment funds as much lower compliance risk.

By using an AIF, the owner manager of a small player oil and gas will therefore have resolved their first objective, which is reducing the compliance risk of their international structuring arrangements by using a regulated investment fund to raise money and deploy capital.

The next two objectives can be achieved by placing third-party service providers to the investment fund in the United States of America. This means the service providers are in the US legal system.

1. US Compliance
2. US Fund administration.
3. US Custodian.

The independent compliance provider can be a U.S Compliance forensic firm. There are many such firms of practitioners in the US, and such could be hired for the regulated investment fund, which is based outside of the US.

The regulated investment firm can custody funds with a US regulated financial situation. This means US funds raised are retained in the US. They are definitely deployed internationally, but the balance of funds will be retained in the US while the local operation that’s on the way. When revenues begin to be generated, those profits will be accumulated with the U.S Custodian.

The regulated fund manager can’t register with the state regulatory authorities. They could open an office in the US for investor liaison and communications. If the international alternative investment firm has enough assets under management, (as in more than 150 million US) then the fund manager could seek to register with the US FCC. The fund can use a U.S entity (that could be a company or a limited partnership) to issue and register securities with the SEC, which U.S investors would invest in.

When you know… You can Trust.