Project financing for drilling programs, completions, workovers and working-interest shares of an AFE.
Drilling and completion financing funds the cost of bringing a new well on line, the largest capital outlay in the oil and gas business. Operators and non-operating working-interest owners receive an authorization for expenditure, then cash calls as drilling proceeds, and must fund their share before the well produces anything. Capital for that share can come from lines of credit, project loans, reserve-based facilities with development tranches, or partners who take an interest in the well.
Lenders commonly weigh the operator's track record, the offset wells and the geology, the AFE, and the producing assets that already support the borrower. The choice between borrowing and selling working interest changes how much of the well the operator keeps. These guides compare the structures and explain what lenders review.
Guides
Keep the Well: Financing the Drilling Instead of Giving Away Most of It — Most small and mid-sized operators raise drilling capital from investors and keep 30% to 50% of each well. Financing exists for operators, and it costs interest, not most of the production. One well, two ways, with the numbers.
Working Interest Financing: Funding Your Share of Drilling and Completion Costs — Working interest financing funds your share of drilling, completion and operating costs under a joint operating agreement. Here is how AFEs and cash calls work, why lenders treat a working interest differently from reserves, and which structures fit.
The Oil and Gas Loan Application Checklist: Reserve Reports to Title Opinions — An oil and gas loan application is built around a reserve report, lease operating statements, production history, title and division orders, hedging, environmental and plugging liabilities, and financials. Here is what each is for and where files stall.
Joint Venture Partner or Debt: Which Capital Fits Your Oil and Gas Project? — Debt keeps your ownership but demands repayment from a declining asset; a partner takes part of the upside but shares the risk and funds what lenders will not. Here is how to weigh selling interest, farm-outs, carries and DrillCos against borrowing.
Bank or Private Lender for Your Oil and Gas Loan? — A decision framework for choosing between a commercial bank and a private energy lender for your oil and gas loan, by speed, cost, and leverage.
What Oil and Gas Lenders Look For: A Data Checklist — The document checklist energy lenders expect before they price a deal: reserve report, LOE detail, hedge book, title status, and financials, explained item by item.
Small operators commonly combine their own capital with partner capital, lines of credit backed by existing production, and project loans for specific wells, depending on what the lender can underwrite. Selling working interest raises money without debt but gives up part of the well's production permanently.
What is an AFE in oil and gas?
An authorization for expenditure is the operator's cost estimate for drilling and completing a well, which working-interest owners approve and fund in proportion to their interest. Lenders financing a share of a well review the AFE, the cash call schedule and the operator's history of staying within budget.
Can a non-operating working-interest owner borrow for cash calls?
Yes, lenders offer lines of credit and term loans to fund a working-interest owner's share of drilling and completion costs, commonly underwritten on the investor's credit, existing production and the operator's record. Terms depend on the lender and the investor's overall position.
How MercFinancial places it
Oil & Gas Loans — Term loans, credit lines and well-secured advances for drilling, completion, workovers and growth.