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An Overview of Equity Financing—1982

Fritz Meyer, Mineral Financing (1982)

This paper is intended to provide an up-to-date overview of the equity markets as they relate to the oil and gas exploration and production industry.

Our definition of equity is, very simply, capital which does not have to be re-paid, as does debt. Equity constitutes the most permanent form of a company's total capitalization, and it provides the basis for borrowing against assets (long-term), and against inventory and receivables (on a short-term or revolving basis).

I. Description of Forms of Equity Financing.

The business of drilling for and producing oil and gas has, by its nature, spawned a myriad of financing techniques which include equity, debt and hybrid forms. With respect to equity financings we would segment these financing techniques, generally, into balance sheet and off-balance sheet categories, as follows:

A. Balance Sheet Financings.

1.Common Stock (and/or warrants to purchase common stock).

2.Convertible Preferred Stock.

3.Convertible Subordinated Debentures.

4.Exchange offers.

5.Participation in production as an “equity kicker” to a loan.

B. Off-Balance Sheet Financings.

1. Limited Partnerships:

a.Drilling Funds (non-leveraged and leveraged; development, exploratory and balanced).

b.Completion Funds.

c.Income Funds.