Desperate for cash, shale companies are banking their capital-raising hopes on a new type of financial instrument that resembles mortgage bonds.
Specifically, it is an asset-back security
involving existing oil and gas wells. Producers transfer ownership
interests in the wells to special entities that, in turn, issue bonds to
be paid off with output revenues over time. Current yields on the
highest quality wells are almost 6%, but are higher on riskier assets.
The first offering, by Raisa Energy LLC, closed last month. Several others will follow by year-end.
A range of yield-seeking institutional investors
have expressed interest but modeling future production is challenging
due to the complex geology of shale basins and large variability between
wells according to engineers.
The Wall Street Journal previously reported that
thousands of wells drilled in the past five years are less productive
that forecast.
Producers have burned through more than $100B
since 2014. Existing investors have almost completely cut off the money
faucet and banks are expected to lower their credit lines in the coming
months.
https://seekingalpha.com/news/3507122-frackers-float-mortgage-bond-like-security-capital-needs-intensify
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