Private Oil and Gas Lenders: Non-Bank Capital for Independent Operators
When the bank's energy desk is too big to care, private energy lenders, specialty funds and equipment lenders fund the deal on the asset in front of them. MercFinancial places your file with the ones that fit it.
Why banks decline independent operators
A bank energy group is built for borrowing bases in the tens of millions, an established hedge program and a borrower with audited statements. Below that size the loan does not pay for the bank's own engineering review, so the answer is no regardless of how good the wells are. Regulatory treatment of reserve-based loans after the 2015 to 2016 downturn made banks more conservative still, and many regional banks closed their energy desks outright.
The result is a large population of operators, service companies and mineral owners with real cash flow and real collateral who cannot get a bank loan. Private lenders exist to fund them.
Who the private oil and gas lenders are
They are not one type of company, which is why finding the right one is the work.
- Specialty energy credit funds and family offices that make production loans, development facilities and acquisition loans on proved reserves, sized by their own engineers
- Non-bank commercial lenders with an energy vertical, lending term debt and lines of credit to operators and service companies on cash flow and collateral
- Equipment finance companies that know what a workover rig, a compressor or a directional drilling toolstring is worth on the secondary market
- Factors and asset-based lenders that advance against oilfield receivables and joint interest billings
- Royalty and mineral lenders that lend against monthly royalty income
- Working-interest lenders that finance an owner's share of drilling and completion costs
How private lenders underwrite
A private energy lender underwrites the asset first and the borrower second. For a production loan that means a reserve report run through the lender's price deck, with proved developed producing reserves carrying the weight and undeveloped locations discounted or excluded. For equipment it means make, model, age, hours and resale value. For receivables it means who owes the money and how they pay. The operator's history, title and existing liens are checked on every file.
Expect faster decisions and more flexible structures than a bank, at a higher cost of capital: private money prices for the risk a bank will not take. The right comparison is not private lender against bank, since the bank already said no, but private debt against the alternative of selling a working interest or a royalty to raise the same money.
What a brokerage adds
Private lenders rarely advertise, their appetites change with the price of oil, and each one sizes the same file differently. MercFinancial maintains the relationships, knows which lender is funding what this quarter, and sends one packaged file to the two or three that fit rather than shopping it everywhere. We are paid on closed loans that perform, so our interest is in a structure that still works at the next redetermination, not in the first approval.
MercFinancial is a commercial funding brokerage, not a lender. Approval, loan amount, rate, term and funding are decided by the funding source on the strength of the file; nothing on this page is an offer or a commitment to lend.
Frequently asked questions
What is the difference between a private oil and gas lender and a direct lender?
Nothing in practice. A private lender is a direct lender: it funds the loan from its own capital and holds it. The distinction that matters is bank versus non-bank. Banks lend at the lowest cost but only to borrowers that fit their regulatory and size constraints; non-bank private lenders fund what banks decline, at a higher cost.
How much do private oil and gas lenders charge?
It depends on the collateral and the lender. Equipment loans and receivable facilities are priced closest to conventional commercial credit. Production and development loans from specialty funds are priced for energy risk and often include fees or a small overriding royalty. We show you the whole term sheet, including fees and any ORRI or warrants, so the real cost of capital is compared like for like.
Will a private lender finance a single well or a very small operator?
Many will, through the right product. A working-interest line or term loan can fund one well's drilling and completion costs for an operator or an investor. Equipment lenders finance one unit. Factors fund one customer's receivables. The private production lenders generally want a package of producing wells with a reserve report, but the minimum is far below a bank's.
Does working with a broker cost more?
Our compensation comes from the lender at closing or is disclosed in the term sheet, and it is earned only when a loan closes. Because the file goes to the lenders that actually fit, operators generally see better terms and close faster than by cold-calling lenders one at a time. There is no fee to pre-qualify.
What should I have ready before approaching private lenders?
A current reserve report or production history by well, twelve months of lease operating statements, purchaser statements, title and division orders, a schedule of liens and existing debt, and current financials. The more complete the file, the better the pricing; our checklist guide lists every item.
Guides on this topic
- 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.
- 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.
- Seven Reasons Oil and Gas Loans Stall or Get Denied — Seven documentation and structuring problems that stall or kill oil and gas loans in underwriting, and the specific fix for each one, from stale reserve reports to title defects.
Related financing
MercFinancial is a commercial funding brokerage, not a lender. Approval, loan amount, rate, term and funding are decided by the funding source on the strength of the file; nothing on this page is an offer or a commitment to lend.