UAE
Revival and Expansion of Oil Wells through Strategic Debt-Equity Partnership
5-MINUTE READ
August 29, 2025
August 28, 2025
Title
A UAE-based company specializing in oil rig provision and reactivation of deserted or non-operational oil wells sought growth capital to enhance its asset base and pursue regional expansion across the Middle East and North Africa (MENA). With oil markets evolving and mature fields becoming less productive, the company’s technological know-how to revive wells presented a significant market opportunity to extend field life and improve output reliability.
Initial funding aspirations were moderate (USD 45 million) for machinery upgrades and revitalization activities. However, subsequent strategic disclosures revealed broader ambitions, including acquisition of multiple entities in Saudi Arabia, Libya, and Oman, alongside plans to pursue an initial public offering (IPO) within four to five years. This necessitated a more structured and sizable investment approach supporting growth, risk mitigation, and capital market readiness.
Due Diligence and Validation
Financial Assessments: A preliminary analysis confirmed reasonable valuation alignment with expansion needs. Deeper due diligence conducted on-site assessed operational capabilities, backlog of potential wells for revival, and machinery status.
Technical Valuation: Expired patents on core revival technology required a detailed technical appraisal and re-registration of patents facilitated by the investor’s technical team to safeguard intellectual property assets.
Management Review: Discussions with promoters clarified expansion roadmaps, acquisition targets, and governance readiness, all critical inputs for investment structuring.
Market and Risk Review: Assessment of geopolitical risks in acquisition countries, oil price volatility, and regulatory hurdles informed risk buffers and covenants in the investment documents.
Investment Structure and Financial Terms
Total Commitment: Financing support scaled up to USD 100 million to accommodate the phased expansion and acquisition goals.
Mix of Debt and Equity: A mutually agreed debt-equity structure (final ratio based on regular enterprise valuation) allows for flexibility in capital deployment and risk-sharing.
Tranching: Funds are disbursed across four tranches:
Initial tranches for organic growth supporting machinery and operational ramp-up.
Final tranche aligned with acquisition of regional companies and entry into new markets.
Tenure and Moratorium: The borrowing term is seven years with a one-year moratorium on principal repayment, aiding cash flow stabilization in early years.
Interest Rate and Repayment: Interest accrues at 6.5-8.5% pa, payable monthly from the end of moratorium, with principal repayment in 72 equal monthly installments thereafter.
Exit Options: After three years, an equity exit is planned via IPO, promoter buyback, or sale to a new investor. If the company opts against IPO, independent valuations dictate buyout terms with investor assistance. Should returns exceed 18% IRR by year three, profit-sharing arrangements trigger until year five.
Governance and Oversight
The investor appoints a dedicated director on the company’s board with voting rights exclusively on funding utilization and strategic capital decisions.
This director ensures transparent use of funds, timely reporting, and strategic alignment.
Quarterly progress reporting along with internal and external audits, including statutory accounting, form part of monitoring.
Pre-disbursement inspections and valuation updates safeguard the investor’s interests and enforce compliance with agreed values and covenants.
Security, Collateral, and Risk Management
Loan-to-Value Ratio (LTV): A conservative 1:2 LTV framework is employed: every USD 1 lent is backed by USD 2 in collateral assets.
Collateral Package: Includes pledged shares, hypothecation of free cash flow streams, physical assets like rigs, equipment, vehicles, and enterprise insurance covering personnel, assets, and operational risks.
Insurance: Comprehensive risk insurance policies are mandated pre-funding, including operational sites and key management personnel coverage.
Escrow and Payment Control: Cashflows are routed through guarded escrow accounts, facilitating proper service of interest and principal payments.
Default and Remedies: Events of default include failure to maintain LTV ratios, non-payment, or material adverse changes. Remedies include accelerated payments, collateral enforcement, or forced equity exits.
Value Creation and Impact
Technology Renewal: Enhanced patent registration secures operational advantages and acts as a market differentiator.
Operational Scaling: Structured capital supports continuous revival of wells, improving production and revenue predictability.
Strategic Expansion: Acquisition of entities in new jurisdictions diversifies operational risk and broadens market reach.
IPO Readiness: Support from the investor’s IPO advisory teams enhances governance, compliance, and disclosure standards, aiming to unlock public equity markets as a liquidity event.
Returns and Risk Mitigation: The deal balances profitable growth with structured security, achieving acceptable risk-adjusted returns.
