Crowdfunding comes to the oil industry – file under what could go wrong

The great thing about capitalism is its flexibility. If an idea has the potential to generate an attractive return for investors, you can be pretty sure that in a free capitalist market someone will come up with a way to get around all of the obstacles standing in the way of the project and realize its lucrative returns.

This is exactly what’s happening in the oil industry right now. Low oil prices have decimated the industry, but now the industry is adapting to the new environment.

An end to the boom times 

During the North American tight oil boom, companies of all shapes and sizes rushed to get a piece of the action. When times were good, every firm that entered the space was effectively given a license to print money. However, to paraphrase Warren Buffett, when the tide went out it has quickly become apparent which companies were swimming naked, with unsustainable levels of leverage, complex operating structures, and inferior resource reserves.

During the past two years, the North American oil industry has been undergoing a rebalancing. The worst operators in the oil space have collapsed into bankruptcy, while the strongest have used the downturn to apply pressure to suppliers lowering costs and upgrading technology increase the efficiency of existing wells.


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