Climbing “Capital Mountain” is getting harder and harder.
Alberta Oil investigates the conundrum that resource companies face when seeking investment: a project may look great with established long-term profitability but the up front cheque that a money person needs to cut is getting bigger and bigger. It’s an amount that is hard to front, and the costs continue to escalate.
More projects are becoming unconventional and the regulatory burden is onerous. With these high costs, it is hard for companies to pay for projects on their own:
Upfront capital costs continue to increase as companies are drilling in deeper waters, looking for oil in places where traditional imaging techniques are useless, and are focusing on unconventional resources like the shale plays and the oil sands. Tack onto this the fact that oilfield services companies are charging a premium for this complex type of work, and that governments around the world have increased their tax take from resource extraction, and the story starts to look pretty grim. So while projects may show long-term profits, companies struggle to build up a cash mountain to match the size of their capital requirements.
And that pushes companies to the banks with all the requisite drawbacks.
If a company takes on too much debt, it can effectively be owned by a bank, severely limiting day-to-day decision-making capabilities of the company’s leadership. The other issue is that in order to gear up on debt, all investors have to believe your growth story, or you risk gaining cash from the banks and the markets at the expense of losing cash from existing investors.
Image of soldier attending the U.S. Army Special Forces Command (A) Mountaineering Program
5 Comments
deykenya
“Why do governments make sure citizen does not get
outright physical ownership of currency? After all, it would be so much easier
to offer a debt account.
The reason is risk of default. One of the patterns which recur throughout
history is that growing financial sophistication leads to widespread expansion
of credit and exposure to default, and few people successfully avoid it when it
matters. Banks, Pension Savings, Mortgage Guarantors and all the major
financial institutions on which we depend are now tied up in a web of
undelivered assets. In a similarity to governance if the equation is applied to
government the resultant product will give the value product of exploitation!
‘A’ is the registered owner of a bond
(Promise) (Government) payable by ‘B’ (Electorate), the principal on which has
been credit- swapped out to ‘C’. (Economics & Commerce) Central Bank, The
terms are controlled by a deed drafted by an investment bank D Conduit, which
itself receives the interest, which has been aggregated with 30 others (Tax
payers trustee’s Commercial Banks) and sold notionally (Speculation) to E
(employer) Debt financing. ‘E’ is foreign, and flattens the FX risk with a bank ‘F’ High Risk as movable asset, who sells and rolls a future on his long currency book, which is bought by another bank for an assured profit (settlement Bank),by running the position against a higher yield bond bought from a junk-status un recoverable debt (Untraceable)(the homeless and under poverty scum)(illusionary untrustworthy) (who you know rather than what you have attitude borrowing) customer, which has been insured against the risk of
default with ‘G’ underwriter, a major insurer, who happens also to be ‘A’.
These are the styles of
relationship which dominate the world in which ordinary peoples’ savings are
bound up, and they are profitable in the short term. This is why financial rather than commercial
companies increasingly dominate the list of the top companies in America and
Europe. They find it easier to make profits by providing credit and assuming eventual repayment, rather than by actually demanding settlement; a habit which could put off no end of potential customers. (The cycle process of bull or bear market) the sequenced consequence of recession and plenty, the domain of the leaders All our common savings products are bound up in these webs.
.At Government we do not know when and where these webs will break, and, with the greatest possible respect, we don’t think you do either. But it is so certain that they will break, and at an unexpected place and time, that we believe every forward thinking person with a respectable private reserve would do well to opt out with at least part of their savings. (This scenario is the exact reflection of
mental or physical anomalies’ we call illness and its conditioning curable or
not by which selective positions are administered and managed after all the
patient is the owner and debtor of the same promise as the modern premises
allows to be ignorant of.
A purchase of government bonds (Vote) is a good way to do this. But commercial accounts, indexes, spread bets, and futures all fail to extricate the buyer from the web of dependencies, because they are based on undelivered debt. The only way to opt out of the web is to own physical property outright, which to the individual citizen can never materialize since as then repossession will become
illegal as an act and a new form of recession will become evident that of total financial collapse just as the struggle of independence and delivered independence by diminished responsibility. (historically can be referred to each format of recession always befell when commercial banking constructed derivatives and influenced investment banking as the solution to balance the loss and profit account knowing that the above banking template will always prevail and cover any anomalies of overspending or misappropriation of funds in trust just as risk spreading and damage limitation, as would in any scenario when fear dominates the exposure of failure and derived to be ignorance that now would drive education into bankruptcy.
This is why rates and taxes are tagged as tethers that captivate our
freedom but gives us administered liberty and has concentrated on being the
best way in the world to do just that than be as invented slavery. As would you
read in the scared books of casting the evil spirits transcendence in modern
language to mean inheritance or haunted by the ghosts.
Just as poverty is for believers and prosperity is for the less that is in line institutionalized thus is the undercurrent of collective failures be it by any principles of any ideological path but valuing each grain of human life and its environment how we would enable such possibilities will not lessen the mystic comprehension but enhance it, just as forgiveness is the hope for change what we conscientiously forget that this only creates a new diversion, for change is progress and return to its original is time loss and can never be the same just as an original art is difficult to repeat by the same artist but in mechanical.
It is in this position that creation and creator remain unchangeable and progress
is never stoppable unless destroyed and from this decay new life arises, just
as we neglect our parents as old and orthodox and loose respect but show love
and transfer our care towards the new child that will evolve and flow the cycle
as is all comes from the value of possession when earth is the possessor of all
its occupants as a home that we live and breathe in by this right all realities
are conditioned or progressed the sum total of 9/10th possession is law and it
is in these conditioned or progressed that initiates challenges to motivate the
values of good and or bad governance in either singular or plural plane of
thinking.
Samarendra Dey
Itabirite
Not enough information in the article to properly assess the thesis, but unconventional = higher risk. A company that is profitable now, but wants to invest in a future project with a high degree of outcome uncertainty will definitely have difficulty accessing low cost capital.
Sergo Cusiani
If you mine a piece of ore the same month next year, it will have 20% less value compared to the same piece mined today. Why should banks risk their money giving you long term (5-10 years) loan for mining when they can make better profit sooner somewhere other than in mining?
schnabel
Sergo: An investment or loan in mining is all about where the commodity price will be next year. If you expect it to go up, there is no better investment than mining. That said, there is also no more speculative investment than mining.
Sergo Cusiani
schnabel: A bank was so much happy to invest $20 million into the mine, that did not bother how honest the mine management was when reporting reserves. Now everybody is looking for somebody to blame.