Pumping units operate near Crane in this 2018 file photo. Production Lending just closed its largest investment, a $35 million loan to a Midland-based oil and gas operator, helping provide capital to operators who have found it hard to access capital from traditional institutions.

In addition to electricity to power drilling, completion and production projects, Permian Basin oil and gas operators need capital to fund their activities. And funding has been challenging as investors increasingly shun oil and gas or focus primarily on larger deals.

Stepping in to meet those needs are companies like Production Lending LLC, which recently closed its largest investment yet, a $35 million loan to a private Midland-based company that will allow the company to drill and complete six horizontal wells in the northern Midland Basin.

Abhishek Kumar, who founded Houston-based Production Lending in August 2016 with Ryan Childs, said the former energy investment bankers formed the company because they saw a gap in the market.

He told the Reporter-Telegram in a telephone interview that, beginning in 2014, new regulations made it challenging for banks to provide oil and gas financing for smaller companies. Now, he said, even loans between $25 and $35 million are limited. 

“Throughout our journey, we realized the problem oil and gas companies face for capital access has gotten worse, even with the increase in prices.”

“It’s a combination of multipliers,” Kumar said. “First, a lot of people lost capital with the boom and bust cycle, like 2008-2009. Second, there was the change in sentiment among people and politically after 2020. Third, COVID was the last nail – prices fell so low, a lot of talent in the oil and gas industry left and funds chose to pivot to the energy transition and companies rebranded as energy transition because it was easier to raise capital.”

Since its founding six years ago, he said the company has closed more than 40 transactions. While he said the company is “agnostic” as to where it does deals, a number have been in the Permian Basin – both the Midland and Delaware basins – as well as in Utah, Louisiana and conventional plays in East and South Texas. Last year, he said, the company did its first offshore deal.

The recently closed $35 million investment is the company’s largest, and even at that level the company didn’t see a lot of competition from other potential investors.

Kumar said the company likely won’t do deals larger than $35 million or $40 million, preferring to focus on what he called its “bread and butter” of deals between $5 million and $15 million.

“We want to find the right partners we can do repeat business with,” he said. “Going forward, we want to continue backing strong operators who have a great work ethic and add value.”

“I think a lot of people are realizing what was anticipated in 2020 and into 2021 – the demise of oil and a world transitioning to alternative fuels has proven to be completely false,” he said. “It’s been clearly established the world has a strong demand for oil and gas and energy (and) there have been years of underinvestment,” he said.

For the first time in his energy banking career, he said, he feels the future for energy financing is bright because oil and gas isn’t going anywhere.

“There’s a lot of demand for our product,” he said.

Mella McEwen is the Oil Editor for the Midland Reporter-Telegram.