© 2007 Strategic Risk Management UNCTAD, Nairobi May 24, 2007 Strategic Risk Management Meeting the challenges of increased oil and gas revenues Options

© 2007 Strategic Risk ManagementUNCTAD, Nairobi May 24, 2007

Strategic Risk ManagementStrategic Risk Management

Meeting the challenges of increased oil and gas revenues

Options to invest revenue windfalls and sustain future growth in Africa

Jean-François Casanova , CEO, Strategic Risk Management, France.

African Oil Conference - Nairobi, May 24African Oil Conference - Nairobi, May 24thth, 2007, 2007

DAY 2, Session 5, Room B, 8: 45 – 10:15

NOT AN OFFICIAL UNCTAD RECORD


“I really like the idea of making money and doing good and I am perfectly happy if it happens in that order”

James CameronChairman of Climate Change Capital

Making money while providing future development


Africa challenges of increased oil and gas revenues

Major imbalances within Africa


At least a light of hope

GDP over 6%

Africa energy leaders are taking off to gatherwith growth in line with the best


A barrel at USD 50 means an additional revenue of 300Bln per year

Estimated amount: more than USD 1.5 Trillion


What is done with all this money ?


Major Oil exporters are relatively risk adverse


But taking risk pays !

HFRI Distressed Securities Index

NAREIT-AllHFRI Fund Weighted Composite Index

CLO Equity Proxy

CSFB Leveraged Loan Index

CSFB HY Index

CSFB Conv Securities

U.S. Inflation Gold

MSCI EAFE

JPM Emerging Markets

DJ Wilshire 5000

S&P/BARRA 500 Value

S&P/BARRA 500 GrowthS&P 500

LB AAA CorpLB Aggregate Bd

ML Corp

ML ABS

ML MortgageU.S. LT Gvt

U.S. IT Gvt

U.S. 30 Day Tbill

Venture Capital*

Private Equity*

Buyout Mezz*

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00%

Annualized Return Volatility

An

nu

aliz

ed R

etu

rn

Illiquid Asset Outperformance over Traditional SML: 5.8%

S&P Incremental return vs. ML Corp: 286 bps

Source: CSFB, Ibbotson Associates, Venture Economics, Callan Associates

From a pure investment perspective, investing in Emerging market gives a substantial premium


Middle East exporters are less risk adverse…


… and meet more easily future development

• Gulf Cooperation Council experience– Saudi Arabia, Kuwait, UAE, Bahrain, Qatar, Oman– Seventh emerging market GDP USD 733 Bln– Close by it size to Mexico or South Korea


Non Oil GDP are higher and much less volatile !


As an additional benefit

Dependence on import & public expenditure declines years after years


And

Private investment increases as public expenditure gain room to expand


First conclusion

Create the environment and profitable investments opportunities will arise


These are from the originals from NASA

Clean carbon and making money: Bio-energy as an Entrepreneurial Solution for

African investors?

Policy & GovernmentPolicy & Government

Bio-fuels IndustryBio-fuels Industry

TransportationTransportation

Equipment ManufacturerEquipment Manufacturer

InvestorsInvestors

Agro-BusinessAgro-Business

AutomotiveAutomotive

EnergyEnergy

The tropics are the main area for biofuels production today!


Source: Ministry of Mines and Energy - Brazilian Energy Balance – 2006and Laura Tetti – USP – 2002

106 BEP FUEL DEMAND FOR LIGHT VEHICLES IN BRAZIL

0

20

40

60

80

100

120

140

160

180

1970 1975 1980 1985 1990 1995 2000 2005

YEAR

TOTAL DEMAND FOR LIGHT VEHICLES (GNV INCLUDED)

GASOLINE PRODUCTION

GASOLINE CONSUMPTION

TOTAL DEMAND FOR LIGHT VEHICLES (WITHOUT GNV)

This curve shows how much gasoline would be necessary to satisfy the fuel demand for light vehicles supposing the non-existence of the

Brazilian Ethanol Program

Total economy of 778 million boeor 15 months of the present Brazilian

petroleum production.

Accumulated economy of 7 years and 9 months of pure gasoline consumption.

US$ 61billions

IN THIS PERIOD, WITH THE ETHANOL USAGE, THE EMISSION OF 644 MILLION TONS OF CO2 WAS AVOIDED

+ US$ 16billions

One of our favourite option for meeting African future development

Ethanol Experience in Brazil: Oil economy and environmental benefits


A comprehensive development model for Africa

• Forward integration by farmers and backward integration by the many end users of Bio energy

• More acreage put into production, more income for farmers

• Creation of thousands of jobs in newly constructed plants

• Appreciation in farm and other real estate values

• Creation of ancillary industries and services in various sectors

• Supply chain and logistic companies to meet requirements by palm, oilseeds and ethanol producers

• Training and development firms to support managers and employees of ethanol plants and for related industry players

• R&D firms to advance the technology and discover new technologies

• Local population may get access to cheaper fuel

• Potential to bring in venture capital to provide these start-ups with capital required

• Higher number of local plant owners will yield a higher economic impact through tax receipts to local governments


Is this growth model suited for Africa, and how can it produce an attractive rate of return over time?

The Methodology for investing is about evaluating investment allocation

• Strategies and risks associated

– Is it really entrepreneurial? Free market or state control ?

– Within the Bio energy value chain: who will really make the money as power in the channel shifts over time

(growers, refiners, big energy companies, wholesale distributors, retail sellers)?

• Analysis goals

– Identify portfolio strategies

• Determine investment allocation guidelines

• Identify the level of risk capital available or the investment requirements for risk capital

– Assess the risk to the overall portfolio

• Earnings at risk and equity value implications

• Credit at risk and downgrade risk implications

• Iterative process

– Evaluate current “risk capital” available

– Ranking of the investment opportunities

– Structuring of investment scenarios among business units


Second conclusion

• Use petrodollars windfalls to develop Africa to a new Agricultural age for producing Energy

• Make money and do good in creating Value through a purchase transaction in which you buy or build asset at a bargain

• Be part of a Global Entrepreneurial Revolution


Don’t stay on the side line, be part of the African development

“Be the change you wish to see in the world.”

M. Gandhi


Strategic Risk ManagementStrategic Risk Management

Jean-François Casanova52, rue de Ponthieu 75008 Paris

Tel : +33 (0)1 45.62.16.64Mobile: +33 (0)6 15 38 64 08

E-mail : [email protected]

For any Question :For any Question :

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© 2007 Strategic Risk Management UNCTAD, Nairobi May 24, 2007 Strategic Risk Management Meeting the challenges of increased oil and gas revenues Options