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Equipment Financing[/caption]Introduction
The energy and natural resource sectors—particularly drilling, mining, oil, and gas—are some of the most capital-intensive industries in the world. Their operations rely heavily on advanced, specialised equipment and substantial working capital. With fluctuating commodity prices, complex logistics, and extended project cycles, companies in these sectors often turn to equipment financing and working capital solutions, which offer significant benefits, to remain competitive, scalable, and resilient.
Overview of the Industry
1. Drilling
Drilling activities are prevalent in oil and gas and mining. They require sophisticated rigs, directional drilling technologies, and support systems. Offshore and horizontal drilling have raised the bar for capital requirements, making financing solutions critical.
2. Mining
Mining involves surface or subsurface excavation for resources like coal, gold, iron ore, and rare earth elements. Operations are equipment-intensive, often requiring excavators, haul trucks, crushers, conveyors, and processing plants—all requiring significant capital outlays.
3. Oil & Gas Exploration and Extraction
This sector includes upstream (exploration and production), midstream (transportation and storage), and downstream (refining and marketing) segments. The upstream segment—exploration and extraction—demands substantial upfront investment in geological surveys, seismic imaging, drilling, and well completion technologies.
Understanding Equipment Financing
What is Equipment Financing?
Equipment financing refers to loans or lease arrangements that enable businesses to acquire equipment without a large upfront payment. Companies can purchase the equipment using a loan or lease it from a financier.
Types of Equipment Financing
Operating Lease: Off-balance-sheet financing where ownership stays with the lessor.
Capital Lease/Finance Lease: Treated like a loan, the asset and liability appear on the balance sheet.
Equipment Loans: The company owns the equipment outright after repayment.
Sale-Leaseback: The company sells equipment to a lender and leases it back to free up cash.
Key Benefits
Preservation of Cash Flow: Reduces initial outlay.
Asset Matching: Aligns cost with equipment life span.
Tax Advantages: Section 179 deduction or depreciation benefits.
Scalability: Enables quick ramp-up during favourable market conditions.
Working Capital in the Energy and Mining Sectors
What is Working Capital?
Working capital is the capital available for day-to-day operations. It’s calculated as current assets – current liabilities. In capital-heavy industries, maintaining positive working capital ensures operational continuity.
Uses of Working Capital in This Sector
Payroll and HR costs
Equipment maintenance and repairs
Consumables like fuel, lubricants, and chemicals
Payment to subcontractors and service providers
Insurance, permitting, and compliance costs
Unexpected downtime expenses
Sources of Working Capital Financing
Lines of Credit: Flexible access to funds.
Invoice Financing/Factoring: Advances based on receivables.
Merchant Cash Advances: Fast cash, high interest.
Short-term Loans: Lump sum repayment with interest.
Supply Chain Financing: Allows suppliers to get paid early.
Challenges in Financing Drilling, Mining, Oil & Gas
1. Cyclical Industry Risks
Commodity prices are volatile. Financing during down cycles is challenging as lenders become more conservative.
2. Equipment Depreciation
Heavy equipment depreciates rapidly. Residual value uncertainty affects leasing and resale.
3. Environmental and Regulatory Risks
Increased scrutiny from regulators and environmental groups impacts project timelines, permitting, and funding.
4. Remote Locations
Logistics and infrastructure needs in remote mining or drilling locations increase capital costs.
5. Technological Obsolescence
Constant automation, telemetry, and AI advancements can make older equipment less desirable.
How Equipment Financing Solves Capital Challenges
Key Equipment Financed in the Sector
Drilling Rigs and Platforms (onshore/offshore)
Excavators and Loaders
Haul Trucks and Shovels
Compressors and Pumps
Seismic Survey Equipment
Processing and Refining Units
Well Logging and Testing Tools
Underground Mining Equipment
Directional Drilling and Mud Systems
Mobile Camps and Infrastructure Units
U.S. Case Study 1: Halliburton – Financing for Rigs and Expansion
Background
Halliburton is one of the largest oilfield services providers globally. In 2021, with oil prices recovering, Halliburton sought to ramp up operations across the Permian Basin. They required rapid deployment of high-spec horizontal drilling rigs and related infrastructure.
The Financing Approach
Partnered with multiple leasing firms and banks.
Used a mix of finance leases and equipment loans to fund over $200 million in new rigs.
Leveraged sale-leaseback arrangements on older equipment to raise cash.
Negotiated seasonal payment terms that aligned with high drilling season cash flows.
Results
Accelerated deployment of 25+ new rigs.
Preserved cash for strategic acquisitions.
Avoided shareholder dilution and heavy debt increases.
Enabled a 12% increase in quarterly production year-over-year.
Lessons Learned
Flexible financing can boost capacity quickly.
Diversified lenders reduce dependency risk.
Tying funding to expected production creates lender confidence.
U.S. Case Study 2: Hecla Mining – Working Capital and Lease Strategy
Background
Hecla Mining operates some of the U.S.’s oldest and most productive silver mines, including Lucky Friday and Greens Creek. In 2020, despite strong commodity prices, Hecla faced working capital issues due to supply chain delays and high maintenance costs.
Financing Solutions Used
Negotiated a $50 million working capital revolving line of credit from a regional bank.
Entered capital leases for underground haul trucks, scoop trams, and drills.
Used equipment leasebacks to free up balance sheet cash.
Deferred lease payments on new orders until delivery, matching CapEx with use.
Results
Maintained operational continuity without stock dilution.
Improved liquidity ratios and reduced average supplier payment days from 78 to 42.
Allowed increased ore throughput and reduced per-unit extraction costs.
Lessons Learned
Working capital lines minimise the risk during uncertain supply cycles.
Leasing matched to asset usage improves cost efficiency.
Strong banking relationships help in downturns and permit flexibility.
Trends in Financing for the Sector
1. ESG-Linked Financing
Financiers now offer better rates for companies with Environmental, Social, and Governance (ESG) benchmarks. Companies using cleaner fuels, safer equipment, or carbon reduction plans often receive better terms.
2. Hybrid Finance Models
Combining leasing, working capital loans, and performance-based financing (e.g., tied to extraction output or reserves proven) provides flexibility.
3. FinTech Disruption
Digital lenders and platforms now provide faster underwriting, particularly for smaller drillers or miners who lack access to big banks.
4. Equipment-as-a-Service (EaaS)
Some OEMs now offer equipment on usage-based subscriptions rather than ownership models.
How Companies Can Optimise Financing Strategies
1. Engage Early
Discuss with lenders and lease providers during planning stages to align capital with project needs.
2. Mix Financing Types
Use a blend of leasing, loans, and working capital tools for optimal flexibility and cost.
3. Track Equipment Utilisation
Use telemetry to monitor asset use. Underused equipment can be sold or subleased.
4. Prepare for Downturns
Build in covenant flexibility, interest-only periods, and variable payment options.
5. Tax Planning
Leverage tax credits, depreciation strategies, and Section 179 deductions to offset finance costs.
Conclusion
Equipment financing and working capital are vital lifelines for drilling, mining, oil, and gas extraction companies. These industries’ capital-heavy nature, cyclicality, and technological demands make innovative financing convenient and competitive. From large players like Halliburton to mid-sized miners like Hecla, success often hinges on capital strategy as much as operational efficiency. With thoughtful planning and the right financial partners, companies can mitigate risk, scale operations, and capitalise on opportunities across the energy and resource landscape.