The oil and gas sector is experiencing a financing renaissance, driven by energy security concerns and higher returns for the remaining lenders
There are opportunities for gas to meet new demand, as seen with the data centre boom and despite net-zero commitments
Critical minerals mining faces continued financing challenges, due to strict ESG requirements in Europe and lack of financial support – creating a potential bottleneck for energy transition goals

Energy sector financing is in flux, driven by geopolitical pressures and practical realities.

ESG considerations have divided the world of lenders: those willing to lend to oil and gas, and those that are not. This split is also emerging in critical minerals financing, as mining companies face scrutiny over their environmental impact.

But the energy transition will need both hydrocarbons and minerals. While there are signs of progress for oil and gas businesses, mining companies are still struggling to secure funding despite their crucial role.

There are two broad drivers of a resurgence in hydrocarbon financing. First, following the invasion of Ukraine in 2022, energy security is front and centre for politicians, particularly given its impact on inflation.

Second, it’s good business for lenders.

Higher returns

“We’ve seen swathes of international banks leave the sector,” Bracewell partner Adam Blythe said during a briefing this week. “Those that remain are more committed and more willing to finance.”

His colleague, François Feuillat, described it as a question of supply and demand. “If less capital is chasing deals, the cost of capital goes up. As a result, those returns are higher than they were.”

New financiers are coming to the space, as European banks move away.

“There are other sources of financing, that don’t face the same ESG concerns,” Blythe said. “There are institutions in the Middle East, or state-owned, or African development-focused, for instance. These are bodies that have more focus on the S and the G, than the E.”

This can be seen in the UK also. While many brokerages have left the oil and gas space, those that remain see new opportunities.

Goldilocks financing

Blythe focuses on African M&A, but there are some clear trends that can be drawn more globally. Most sales in mature basins involve majors exiting and transferring to independents or local companies. These smaller players require financing to pay their way and carry out field work.

The pools of capital available to these buyers is smaller, in terms of capital available and the sources.

“In response to this, financings are multi-sourced from a variety of institutions and dealing with different types of funders,” Blythe continued. These range “from international commercial banks to multilateral institutions to traders”.

The buyers must navigate the different and potentially competing needs of these varied lenders. “What that means is financings take longer, the documenting takes longer, the agreeing takes longer, the approvals take longer – and closing takes longer.”

But this is improving. “While the number of [funding] sources to the industry is unlikely to materially change in 2025, we are seeing new funds and new lenders emerge. We’re also seeing the continuing banks in that sector willing to give bigger commitments.”

The sector is reaching a “Goldilocks” moment, he noted. The “right borrower and the right asset pool” are coming together. “We’re actually seeing increased appetite for oil and gas lending.” He noted two recent upstream fundings that Bracewell had worked on had been oversubscribed.

Powering gas demand

“There’s a continuing theme of energy security,” said Blythe. He noted, in particular, the reliance of Europe and gas – and how this is driving a change in perceptions.

“There’s a rebound in interest in oil and gas, particularly gas for power generation,” said Feuillat.

He cited increased demand from data centres – and AI – as spurring a need for more power. Nuclear is not a quick fix, particularly in Europe and the UK, while renewables pose intermittency challenges. Batteries can help solve this problem, but alongside conventional power build out.

Data centre owners are more and more interested, therefore, in gas. “That can be having long-term power purchase agreements [PPAs] with gas-powered producers or it can be outright acquiring of gas-powered power stations,” the partner said. Tech companies have not yet taken equity stakes “in a meaningful way”, he said. “But we are aware of interest from infrastructure funds in such assets.”

Such companies have often made net zero statements but Feuillat said that while emissions may go up, they “can buy certificates to compensate”. While they promote efficiency projects, “their priority is to increase their capacity rather than reduce the amount of power they use.”

Data centre demand is rising and companies are responding. While ESG concerns remain important, practical needs are reshaping investment priorities.

But not all sectors critical to the energy transition are seeing this same renaissance.

Going underground

Ro Lazarovitch, another Bracewell partner, brought up mining for critical minerals as a counterpoint.

While miners are making efforts to align with global climate goals and reduce emissions, “there’s still a question around exactly how all of this is going to be funded in the medium and long term”.

Lenders in Europe are becoming more critical of mining companies, he continued, because of emissions. And, meanwhile, prices for minerals is not yet fully supportive.

“The demand for critical minerals is certainly increasing but we’re not yet seeing the kind of pricing that can underpin exponential growth in that sector,” Lazarovitch said.

Seeking premium

While the European Critical Raw Materials (CRM) Act has set some goals and clarified needs, it has not provided “any significant new funding”. The partner noted the higher costs for European miners, for instance working on decarbonisation, while Chinese miners “don’t necessarily employ the same standards”.

There is not a premium for these minerals in Europe, Lazarovitch said. “In fact, often prices for raw materials are higher when you sell them into China.” The lawyer diplomatically said there would likely be a “discussion” over 2025 on how to fund the transition for miners.

Demonstration of the challenges for critical minerals came this week with Galp throwing in the towel at its proposed lithium project. The Portuguese company had teamed up with Northvolt, which collapsed last week, to supply battery production from domestic sources. However, the “current context” made it “impossible to continue with the project”, Galp said.

These minerals are becoming more and more important to Europe as energy transition goals move from plans to execution. Critical minerals have been recognised as a source of energy security, even though they struggle to win the support.

If there is neither premium nor support, these companies will need to change their business model – and perhaps move away from the transition hopes.

The oil and gas sector has shown what happens when there is this sort of blockage. Financiers split into the willing and unwilling, bringing their own needs and desires to what they intend to finance.

If Europe wants the outputs of a mining sector, with lower emissions impact, it must find a way to finance it. This is a key challenge for the energy transition. There is a need to align environmental goals with practical needs – and financial returns.

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