Financial markets have proven adept at creating markets for asset-backed securities. An individual auto loan may lack appeal, for example, but a highly diversified package of auto loans may be attractive, assuming it is appropriately collateralized and offers a competitive yield. Diversification lowers the risk of individual loans, allowing a loan package to be rated by a respected rating agency.
Now something similar has been developed in the energy area. Using proprietary software and machine learning models, working interests in wellbores are being packaged together to garner an investment grade rating. The highly diversified pools are collateralized by interests across multiple basins and throw off a yield—in certain cases approaching 6%—that institutional investors have found attractive.
The move to securitize energy interests is seen by some as a key first step. Historically, interests in oil and gas have been highly fractionalized with few options for liquidity. But now, sometimes small, nonoperated working interest holders are being connected with institutional investors and vice versa, according to Raisa Energy LLC, the sponsor of a new class of asset-backed securities.