Oil projects funded by crowdsourcing

Crowdsourcing has made its way into the oil and gas industry. Launched in July 2014, Houston-headquartered EnergyFunders gives smaller investors the chance to take part in the energy market. Also located in Texas, rival CrudeFunders offers similar opportunities.

Investors receive equity in the project after investing, while EnergyFunders receives a 10- percent share of any profits made from the project. Using this vehicle, the company raised more $200,000 in January 2015 to fund a 16-well oil project in Dallas, Texas.

Established energy lenders are sceptical of the new funding vehicle. Christopher Ross, professor of finance at the University of Houston’s C.T. Bauer College of Business expressed concern, suggesting that investors may not be knowledgeable enough to consider factors such as drilling technology and geology prior to investing.

The start of oil crowdsourcing coincided with the start of the 50-percent drop in crude oil prices. CrudeFunders has capitalised on the price slump with marketing advertisements that encourage investment while prices are at historically low.

A number of investors view the current slump in oil prices as an opportunity to enter the market. “With oil at $50 (a barrel) or below, it’s the perfect environment to get our hands on these,” said Scott Morris, an investor based in Austin, Texas.