Oil and Gas Accounting: Financing Configurations and Debt Analysis

This report provides an overview of financing options for oil and gas projects, focusing on the challenges and opportunities in the industry. It examines the importance of project financing, especially in the context of long-term, capital-intensive, and risky ventures. The report discusses the significance of debt financing and equity funding, considering both public and private equity. A case study of UK Oil & Gas Investment (UKOG) is presented, highlighting the suitability of debt financing for their upstream projects. The report references sources like BBC News and academic journals to support its analysis, emphasizing the efficiency of project financing in maximizing debt and the flexibility it offers in project operations. The conclusion underscores the advantages of debt financing for UKOG’s projects. The report also references the importance of cash-flow analysis and the impact of recent capital-market dynamics on the relative competitive position of oil and gas companies.

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Table of Contents
Applicability of Financing Configurations for Oil and Gas Projects.........................................2
Reference....................................................................................................................................4

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Applicability of Financing Configurations for Oil and Gas Projects
Petroleum is one of the major sources of the energy worldwide as well as major
earner of revenue for the economy of the country. Financing the oil and gas projects is the
major challenges for the company. It is because the projects are of long-term, capital
intensive and is risky in nature. Oil and gas projects can be financed through the projects
financing. It is defined as the financing, under which lender looks to the money that is
generated by the single project as the security for loan. Hence, under this way the focal point
is on the cash flows of the projects and for the different opportunities of the investment,
investors maintains their financial viability (George et al. 2016). Moreover, the debt
financing can be used that is of lower cost. Lastly, the companies of oil and gas can also
raises cash by the help of equity that can be owned by the investors by two different ways,
which is public or private. The investors generally acquires the shares of the publicly listed
companies in case of public equity, under which the company raises capital and the additional
shares are being issued to public when the company matures. However, in case of private
equity, the investors negotiates as well as reaches the agreements with private companies
owners for the investment, ownership as well as control that will be handed over in the return.
This can be in the form of leverage buyouts, distressed assets, venture capital and growth
capital (Stern, Pirani and Yafimava 2015).
Hence, in case of UK Oil & Gas Investment, which is the oil and gas exploration
company of UK is planning for undertaking the upstream oil and gas projects. This projects
include the activities such as the exploration of the reserves, the drilling as well as evaluation
of commercial viability of the wells and the recovery as well as production that includes
initial processing from the fields. The sources of financing for the projects is equity funding,
reserve-based lending, forward sales, volumetric production payments, corporate debt and
project finance (BBC News. 2019). The suitable funding option for the project that will be

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undertaken by UKOG is through the debt financing. It is because this involves lending to the
project for developing the project and repaying the debt from the cash flows that are
generated by project. Project financing, generally is the efficient way for maximizing the debt
finance that are backed by the revenues of the future projects. The projects that are funded by
the project finance are considered to be highly leveraged. The advantage of the proceeds that
are going directly to sponsors is the availability of flexibility in relations with that of the
project’s operations. Hence, debt financing would be the great option for financing their
projects (Tanaka 2014).

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Reference
BBC News. (2019). Gatwick oil find 'significant'. [online] Available at:
https://www.bbc.com/news/business-32229203 [Accessed 5 Jul. 2019].
George, R.A., Siti-Nabiha, A.K., Jalaludin, D. and Abdalla, Y.A., 2016. Barriers to and
enablers of sustainability integration in the performance management systems of an oil and
gas company. Journal of Cleaner Production, 136, pp.197-212.
Stern, J., Pirani, S. and Yafimava, K., 2015. Does the cancellation of South Stream signal a
fundamental reorientation of Russian gas export policy?. Journal of Self-Governance &
Management Economics, 3(2).
Tanaka, H., 2014. Toward project and program management paradigm in the space of
complexity: a case study of mega and complex oil and gas development and infrastructure
projects. Procedia-Social and Behavioral Sciences, 119, pp.65-74.