General information only. This article is educational and is not financial, legal, tax or investment advice, or an offer to lend or invest. Get advice from qualified professionals about your situation.
Oilfield service work is capital-intensive. Rigs, pressure trucks, tanks, tools and tubular inventory cost a lot, and cash flow follows commodity prices and drilling programs. The right financing structure can help a company take on work without tying up all of its cash.
The main options
Equipment loans
The company borrows to buy the equipment and owns it from day one, with the equipment as security. Payments can sometimes be structured around seasonal work, such as reduced payments during spring break-up.
Leases
The lender owns the equipment and the company pays to use it, often with an option to buy at the end. Leasing can preserve cash and may have tax and accounting effects; ask your accountant how it would be treated for your company.
Sale-leasebacks
If a company already owns equipment outright, it can sell it to a financier and lease it back. This releases cash tied up in equipment to fund working capital, pay down expensive debt or mobilise for a new contract.
Inventory and receivables financing
Suppliers of oil country tubular goods (OCTG) and other materials often need to buy inventory well before they are paid. Inventory financing, purchase order financing and invoice factoring can help bridge that gap, especially when customers pay on long terms.
What lenders look at
- The equipment. Type, age, hours, condition, maintenance records and how easy it is to resell.
- The work. Master service agreements, contracts, customer quality and utilisation.
- The cycle. How the company performed in past downturns and how it would cover payments if activity drops.
- The people. Management experience, safety record and customer relationships.
Tips for a smoother approval
- Keep an up-to-date equipment list with serial numbers, hours and photos.
- Have recent financial statements and an accounts receivable ageing ready.
- Show the contracts or work program the equipment will support.
- Be upfront about existing liens and leases.
Diamond Ridge's principal has a background in OCTG, so we understand oilfield equipment and how service companies get paid. See oil & gas equipment financing or submit a request.
Related
Oil & Gas Equipment Financing · Equipment Financing · Invoice Factoring