Regulatory Compliance Is a Constant (and Costly) Challenge for the Oil and Gas Industry

Just as it’s difficult to turn a large ship, it’s challenging for oil and gas companies to make adjustments to quick-changing industry-wide regulations. Every time they approach a turn, strategic remapping is required. Organizational costs can be considerable for petrochemical services companies that face continual regulatory revisions.

Eighty percent of the domestic oil and gas companies in the U.S. are small, often with fewer than 10 employees. In contrast to large international corporations, the numerous small businesses operating in this sector often have a hard time budgeting for state and federal compliance requirements.

Safety improvements to minimize hazardous risks are mandated regularly, with good reason. This means more and more oil and gas companies are utilizing automation and artificial intelligence for real-time data reporting, compliance and cost containment. The technology, tools and manpower needed for these stringent standards can be costly. Business owners in the oil and gas sector know that compliance carries a hefty price tag.

Additionally, the fickle nature of the market presents its own challenges for energy companies. Their profitability dips and spikes based on weather, geopolitics, and global demand, making their cash balance a constantly moving target. Smaller-scale industry suppliers might find their own finances in flux, as they feel the ripple effects of the larger marketplace. Excavators, water haulers, crane operators, inspectors and others may need working capital solutions to keep their business afloat in the midst of macroeconomics they can’t control.

Factoring frees up funding

It can be difficult for energy service suppliers to avoid and weather cash crunches. Factoring can help by advancing businesses the money they are owed on invoices, without waiting periods or delays. This form of accounts-receivable financing provides steady, dependable payment, in spite of market volatility. Instead of waiting for your customers to pay you, you may consider paying yourself immediately and letting a factor take care of administrative follow-up.

Because factoring provides an advance on your own money, you are not accruing debt, like you would with a traditional bank loan. This helps keep your money pumping through the business so you can sustain and potentially grow your operations. Factoring provides a cushion of security to protect your business from fluctuations in global consumption, production and pricing. This allows you to focus on doing the work, securing new contracts, paying your employees, or reinvesting in your own business. The market may be volatile, but your financial security doesn’t have to be.

Equipment as collateral

If you require a larger cash outlay for a new sensor system, vehicle, IT overhaul or piece of equipment, you may prefer asset-based lending (ABL), which allows you to use your existing rigs, pumps, haulers, or other assets as collateral for flexible lending arrangements. Or you could utilize an equipment lease to assist with the payments over time.

Whether you are part of the upstream, midstream or downstream sector of the oil and gas industry, there are potential financial risks and costs that can make your cash flow unpredictable. ABL offers predictably quick access to cash, with expedited approval processes and affordable rates. Even if your monthly balance statements are inconsistent, ABL offers generous options to harness your working capital.

Don’t let compliance costs overwhelm you

Because the oil and gas industry is highly regulated and operates in a complex global economy, many variables can affect operational costs; therefore, it is wise for businesses to develop trusted partnerships to help manage their capital-intensive financing needs. Gas price swings and governmental regulations should not restrict your ability to do business. With factoring and other working capital solutions, they don’t have to.

To learn more about our flexible financing solutions that can help you manage compliance and operational costs, call Crestmark at 888-999-8050. We are a trusted provider of financing to well-servicing companies.