Rekindling the Flame: Oil & Gas Securitizations -

A number of recent structurings of investment-grade rated securitizations of oil and gas wells are sparking conversations in the U.S. upstream oil and gas industry about this relatively new, structured finance product. Although structured finance products are not new to the industry, interest in these products has been rekindled as exploration and production (“E&P”) companies seek alternatives to the more traditional reserve-based loans, equity financing, and bond issuances. Indeed, earlier this year, Fitch Ratings (“Fitch”) predicted that oil and gas companies may tap the securitization market in 2019 with rated securitizations backed by proved developed and producing (“PDP”) reserves. Fitch also announced that it had enhanced its framework for rating oil and gas royalties securitizations.

This article describes certain structured finance products (e.g., volumetric production payments, future flow securitization of interests that are carved out of the working interests, and future flow securitization of non-operating working interests) for the U.S. oil and gas industry and sets forth certain issues to consider in connection with a potential investment in those products.