Cash Gaps in the Oil and Gas Sector: Market Dynamics and the Role of Factoring in Supply Chains

The oil and gas industry is one of the most critical to the global economy, yet in 2026 it also remains one of the most expensive and complex. Companies are forced to operate under difficult conditions:

Military conflicts, which are difficult to forecast, significantly undermine the industry's stability. For example, the Iran-U.S. confrontation in 2026 was a key factor that drove Brent prices from $70 in February to $110 in May. The blockade of the Strait of Hormuz led to a prolonged physical impossibility of shipping oil through it.

The consequences were extensive. The International Energy Agency (IEA) characterized the situation as an "unprecedented supply shock": more than 14 million barrels of oil per day became unavailable to the market.

In such conditions, problems already inherent to the industry become especially noticeable. One of them is that large customers retain dominant positions, dictating stringent tender terms to contractors and suppliers.

This refers to vertically integrated oil companies (VIOCs). These are large corporations that control the full cycle of the oil business—from exploration and production to refining and selling finished fuel through their own filling stations.

Such companies routinely shift payment terms under contracts to 90–120 days. As a result, buyers and sellers operate under fundamentally different conditions. VIOCs manage their own liquidity through deferrals. However, companies providing oilfield services, equipment suppliers, and logistics operators find themselves in a worse position. They are forced to finance the industry giants at their own expense, freezing working capital.

Cash Gaps in the Oil and Gas Sector:

This results in each stage of global oil and gas production being serviced by hundreds of medium-sized contractor and supplier companies. Large customers (VIOCs) effectively "orchestrate" them, creating supplier pools through complex tender procedures.

In 2025–2026, a trend toward stricter contract terms has become noticeable. The reason is that large businesses are tightening the screws on their counterparties. Let us examine this through examples.

1. In Shell contracts for the supply of pumping equipment and drilling materials, a payment deferral of up to 75–90 days is stipulated. Similar terms are recorded in long-term contracts for maintenance of facilities. Confirmation of this is available in materials on the official UK government website.

2. According to the procurement regulations of a major gas group, payment terms under general contractor agreements are no more than 45 working days, and under subcontracting — no more than 10 working days. We see that each large company arbitrarily sets its own framework (Shell's are different).

However, the terms of this gas group are better only on paper. In practice, actual payment terms can reach 90–120 days due to lengthy acceptance procedures and document reconciliation. This was stated by the head of the oil and gas equipment producers' union.

As we can see, the problem is relevant for companies in different countries that are weakly connected to each other.

In addition to shifting payment terms under contracts, another method of pressure on contractors by VIOCs is widespread today: the absence of advance payments or their minimal size. As a result, the supplier is forced to:

freeze its own working capital for the period from shipment to actual receipt of funds;

or take a bank loan at high interest rates, which eat into the contract margin. This is especially critical for companies with thin margins in the oilfield services and logistics segments.

Factoring as a Financing Tool for Oilfield Services and Supplies

Factoring in the oil and gas industry is the sale of receivables from a reliable customer to a bank or factoring company. Unlike classical lending, the factor (purchaser of the receivable) assesses not so much the supplier's financial condition as the creditworthiness of the VIOC debtor. And debtors in the oil and gas sector are typically of the highest reliability category (AAA).

Let us compare corporate credit and factoring for an oil and gas contractor.

International practice confirms that the largest oil corporations actively use factoring to support their suppliers. For example, ExxonMobil launched a factoring program for local suppliers in Guyana—a region with rapidly developing oil production. The scheme of operation:

the company collaborates with financial institutions so that suppliers can receive money immediately after invoicing;

this allows them not to wait for payment within 30–45 days;

ExxonMobil's contractors have cash flows that they direct to current needs and business development without resorting to bank loans.

Which Type of Factoring to Choose for an Oil and Gas Contractor

The optimal choice for working with VIOCs is non-recourse factoring. The factor purchases the supplier's right to claim the debt and assumes all risks of non-payment by the buyer. If the oil company delays or fails to make payment, it is not the supplier's problem: the supplier receives the full amount immediately.

For the contractor, the advantage here is that it can immediately "forget" about the payment. The factor's guarantee is the highest credit rating of the VIOC, from which the full amount of the debt and penalties for delays can always be recovered.

An important tool for the oil and gas industry is confidential (undisclosed) factoring. Since large corporations do not like to change bank details or sign notifications of assignment of debt, confidential factoring allows financing without changing the customer's payment processes. The customer continues to pay to the supplier's nominal account, and the factor gains access to funds through internal arrangements.

This type of factoring, initiated by the buyer, dominates in oil production.

CFO Checklist: How to Prepare a Contract with a VIOC for Assignment

Here is what needs to be checked:

• absence of a direct prohibition on assignment of the right of claim in the contract;

• clear procedure for signing closing documents — without an acceptance certificate, the factor will not finance the delivery. This applies to all forms: acceptance certificates, invoices, delivery notes;

• absence of counterclaims and penalties on the part of the customer. Any penalties reduce the amount the factor is willing to finance;

• the status of the customer's accounts receivable. For example, at the end of 2025, a major gas group's receivables amounted to a substantial sum, which makes it a questionable counterparty for factoring.

FAQ: Frequently Asked Questions

Question 1: Can a factor finance a contract if the VIOC prohibits the assignment of debt?

Yes, through confidential (undisclosed) factoring instruments or financing against future revenue. In this case, notification of the debtor is not required, and payments continue to be received into the supplier's settlement account. In oil production, agency factoring (where the buyer is the initiator) is most common.

Question 2: What is the maximum payment deferral acceptable for factoring in the oil and gas sector?

As a rule, up to 120–180 days, which fully covers the standard terms of oil tenders. In some cases, the deferral can be extended up to one year. This allows financing even the longest contract cycles.

Question 3: Does factoring require opening new settlement accounts?

Not necessarily. In classical open factoring, settlements go through the factor's transit account. In agency or confidential factoring, the supplier retains its settlement account, and the factor gains access to payment information through the electronic document management system and provides financing upon delivery.