Financing upstream oil and gas: Finding funding amid the energy transition

Fieldfisher has published a new version of its guide, "Financing upstream oil and gas", last updated in 2019, outlining the funding options available for upstream oil and gas companies in the context of net zero commitments.
 
With funding of hydrocarbons exploration and development under the ESG spotlight, the firm's oil and gas experts outline the financing options for E&P companies and how to access them.

The energy transition is having a profound impact on oil and gas financing, as investors and lenders respond to public pressure to wind down fossil fuel extraction.

Continued funding for oil and gas projects is currently consistent with energy transition objectives in that conventional forms of energy are considered necessary 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.

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 updated 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.

Commenting on the new report, Fieldfisher's Head of Oil and Gas Paul Stockley said:

"This is an interesting time for upstream oil and gas financing.

"Concerns about climate change and the future of fossil fuel production have prompted innovations in funding models and are driving welcome developments in the E&P industry's sustainability profile.

"Oil and gas companies have a vital role to play in the energy transition and require funding to enable them to perform that role.

"Our updated guide sheds light on sustainable financing as well as developments in traditional funding, and discusses what lenders and stakeholders expect from E&P companies in order to partner with them on projects."

A copy of the report can be downloaded here.

About Fieldfisher

Fieldfisher is a European law firm with market leading practices in many of the world's most dynamic sectors. We are an exciting, forward-thinking organisation with a particular focus on energy & natural resources, technology, finance & financial services, life sciences and media.

Our Europe-wide team of expert lawyers help clients across the world maximise opportunities and mitigate risks, whatever their involvement in the hydrocarbons sector.

Our network has more than 1,700 people working across 25 offices providing highly commercial advice based on an in-depth understanding of our clients' needs.

We operate across our offices in Amsterdam, Barcelona, Beijing, Belfast, Birmingham, Bologna, Brussels, Dublin, Düsseldorf, Frankfurt, Guangzhou, Hamburg, London, Luxembourg, Madrid, Manchester, Milan, Munich, Paris, Rome, Shanghai, Turin, Venice and Silicon Valley.