American Oil and Gas Reporter - December 2022 - 68

the company's existing insurance carrier.
Then the insured company cancels its
previous LOC or other forms of collateral,
freeing its balance sheet and gaining
access to additional liquidity.
To satisfy insurance carrier requirements,
an extensive array of banks approved
by the National Association of
Insurance Commissioners participates,
including banks found on all carriers'
approved bank lists. The process is
seamless and easy to implement with
the insurance carrier, which receives a
clean, irrevocable and evergreen LOC
coterminous with the company's annual
policy renewals. The letter of credit remains
identical to the carrier's desired
form of LOC.
The entire funding process typically
takes four-six weeks, and the solution
can be implemented at any time, independent
of a company's insurance policy
renewal dates. ICF is flexible enough
that it can raise or lower collateral
amounts as a company's requirements
evolve. It's capable of accommodating
any company's collateral needs, from
hundreds of thousands to hundreds of
millions of dollars.
ICF is available to firms across the
United States and Canada. The cost is
comparable to a company's cost for
capital, an attractive price point for a solution
that can be treated as off-balance
sheet financing and is typically excluded
from financial covenants.
Improving Outcomes
Throughout the oil and gas value
chain, significant amounts of insurance
collateral previously have been posted
with insurance carriers. Today, well-run
companies can devote these resources
to buying new equipment, exploring acquisitions,
refining technologies and sustaining
business operations.
Not long ago, the liquidity provided
to upstream companies through ICF was
being earmarked for managing ongoing
business operations in the face of stilldepressed
energy prices. By the second
quarter of 2022, in the wake of climbing
oil prices, industry participants sought
to rapidly release capital to invest in
growth. The solution offers an easy and
affordable way to accelerate organic
growth and enable acquisitions.
After a relatively sluggish decade in
upstream merger and acquisition activity,
deal flow began to accelerate in late 2021,
and U.S. M&A volumes reached their
2022 high in the third quarter. The incremental
liquidity generated through ICF
can support acquisition activity, reducing
the extent to which firms need to tap into
credit markets at a time when the cost of
debt financing has risen to 15-year highs.
As they evaluate acquisitions, executives
are faced with the sobering realization
that acquired firms come with
their own set of insurance coverages
and collateral obligations, placing pressure
on finance teams to come up with
even more insurance collateral. Whether
through organic growth or M&A, expanding
operations creates a need for
more collateral. Companies looking to
be acquired can leverage ICF to strengthen
their financial profiles and balance
sheets, alleviating some trepidation of
potential buyers.
Although oil and gas pricing trends
continue to provide tailwinds for the industry,
recent geopolitical instability portends
ongoing unpredictability in global
oil and natural gas markets. Access to
additional capital can act as a buffer
against the operating impacts of price
hyper-volatility. When prices soar, the
extra capital can help companies scale
up and compete for limited supplies.
When prices drop and activity mellows,
it can give companies the freedom to
retain skilled employees and invest in research
and development to prepare for
the next upswing.
NRG Safe is dedicated to safety in the oil and gas
industry. Our solar powered LED safety markers
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68 THE AMERICAN OIL & GAS REPORTER
CS-SSL
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American Oil and Gas Reporter - December 2022

Table of Contents for the Digital Edition of American Oil and Gas Reporter - December 2022

Contents
American Oil and Gas Reporter - December 2022 - Intro
American Oil and Gas Reporter - December 2022 - Cover1
American Oil and Gas Reporter - December 2022 - Cover2
American Oil and Gas Reporter - December 2022 - 3
American Oil and Gas Reporter - December 2022 - 4
American Oil and Gas Reporter - December 2022 - Contents
American Oil and Gas Reporter - December 2022 - 6
American Oil and Gas Reporter - December 2022 - 7
American Oil and Gas Reporter - December 2022 - 8
American Oil and Gas Reporter - December 2022 - 9
American Oil and Gas Reporter - December 2022 - 10
American Oil and Gas Reporter - December 2022 - 11
American Oil and Gas Reporter - December 2022 - 12
American Oil and Gas Reporter - December 2022 - 13
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American Oil and Gas Reporter - December 2022 - Cover3
American Oil and Gas Reporter - December 2022 - Cover4
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