Leveraging alternative funding to fuel growth in the energy sector
Companies are preparing to seize new opportunities for growth in the energy sector. Are you ready to join them?
For small to mid-sized companies in the energy, oil and gas sector looking for opportunities to take their businesses to the next level, the last couple of years have proven to be anything but easy – but with the industry poised for growth in 2023, putting yourself in a position to be able to take advantage of new projects is paramount.
Although a potential recession is on the minds of many small and medium-sized business owners heading into 2023, growth in the energy sector is set to continue.
Continued recovery after volatility
Helped by factors including tailwinds from the completion of the Trans Mountain Expansion pipeline and the Coastal GasLink natural gas project next year, the Canadian Association of Energy Contractors (CAODC) is projecting a 15% increase in the number of wells drilled in 2023, as well as more than 5,400 direct and indirect jobs created in the sector.
This is a far cry from the situation the sector faced only a couple of years ago.
The first year of the pandemic was volatile for all players in the oil and gas space, with demand for energy products falling – and the industry experiencing historic low oil prices and drilling activity, says the Canadian Association of Energy Contractors (CAODC.)
Following the challenges of 2020, oil and gas extraction industry revenue grew in 2021 thanks to a rebound in economic activity, rising oil and natural gas prices and increased production volume as demand for energy products climbed, says StatsCan.
This year, recovery has continued for the sector as energy prices reached record highs — although oil prices have eased off since the summer peak, they are still well above the levels seen during the early part of the pandemic.
On the ground, cash flow challenges continue
In spite of improving conditions for many oil and gas companies, small and mid-sized energy firms still face challenges when it comes to cash flow and getting invoices paid on time.
Although many smaller producers are building relationships with large, reputable customers in the oil and gas sector and have agreements in place for their invoices to be paid at net 30 days, payment often gets extended to net 45 or 60 days.
In many cases, customers in the sector are stretching out payment terms even as far as net 90 days, because of the realities of their own cash flow cycles. When combined with small margins, many energy companies find it hard to take advantage of opportunities to grow.
How alternative funding helps energy companies succeed
As Deloitte notes, more than 90% of oil and gas executives are positive about the industry in the coming year. With the chance to take advantage of new business in the sector, having quick, reliable access to working capital is essential. In this economy, however, banks are tightening their lending criteria and re-evaluating lending risk as interest rates rise.
An alternative funding solution like invoice factoring can help ensure you’re in a position to hire new employees, meet payroll and confidently say yes to taking on new projects.
Whether you are in exploration, extraction, refining or another part of the upstream or midstream oil and gas industry, an alternative lending partner with the expertise in helping companies in this sector grow is not only a source of working capital – but will see the potential in your business, go deeper into your story and be a valuable source of advice as you navigate your next steps.
With large, credit worthy customers in the sector, small and mid-sized oil and gas companies are perfectly positioned to take advantage of invoice factoring. This flexible solution will help accelerate your cash cycle, quickly replacing your near-current assets — or invoices — with cash.
With an invoice factoring solution, your business will receive up to 85% of the value of your invoices and the factor collects payment from your customers on your behalf. The process can also be customized to meet your needs, so you won’t be locked into a long-term contract.
Asset-based lending is another flexible funding option that allows you to secure a line of credit against all your valuable assets, including accounts receivable, inventory, equipment and real estate. With borrowing amounts typically calculated weekly, the ability to borrow can increase more quickly for companies in a strong growth cycle.
Looking to the future
With demand in the energy sector set to continue in 2023, forward-thinking energy companies are looking to agile, flexible funding solutions to ensure they’re positioned to take advantage of opportunities to build relationships and grow their market share.
Are you or your client looking to access flexible funding for your energy company? Contact a Liquid Capital Funding Expert today to learn how our alternative funding solutions can help you be ready for anything.