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Unlocking Upstream Financing for Africa’s Oil Sector Development
UNCTAD Conference, Nairobi, June 23rd, 2007
NOT AN OFFICIAL UNCTAD RECORD
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AGENDA
Africa is a growth relay for the oil & gas sector
A strong need to unlock financing in a difficult environment
New and adequate financing techniques for independent E&Ps
Accompanying the oil sector growth in Africa and developing local content.
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AFRICA IS A KEY CONTINENT IN TERMS OF RESERVES POTENTIAL AND DISCOVERIES
Africa’s reserves currently represent near 10% of the Worldwide reserves, i.e. approx. 105 billion barrels, but rate of new oil reserves discoveries in Africa has been the fastest in the world in the past decade, leading to a growing importance of Africa in the worldwide reserves.
Africa’s oil is also a growing part of USA’s oil importations. Sub-Saharan Africa is said to represent 25% of North American oil imports by 2015 compared to approx. 15% at present.
Africa produced over 9 million bpd of oil in 2005. 16 countries are currently producing and prospects are high in at least another 5 countries.
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AFRICA BENEFITS FROM SIGNIFICANT STRENGTHS
Mostly light crude oil with low sulfur tenor
Sizeable oil & gas fields
Geographical location (open to Europe and USA)
Low costs of production in numerous countries (in particular on onshore and shallow water concessions accessible to the independents).
Attractive fiscal terms in most countries for independents and local content companies
An oil & gas upstream sector opened to foreign partners
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TRENDS IN WEST AFRICA
Majors are focusing their attention to large scale projects notably in the deepwater areas
Portfolio rationalization and disposal of marginal assets
Local capacity creation within the indigenous private sector
The high price of oil allows lowered breakeven costs
Progress in term of technique also allows more “aggressive” exploration
New emerging small E&P companies
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The region is still largely under-explored
Geologists assess that there should be important oil discoveries thanks to the progress in the techniques of explorations
Onshore and offshore potential is opening the doors for Majors and independents companies
Countries like Uganda should start producing at a rate of 60,000 bpd of oil in 2008.
This part of the African continent to successfully reach a significant production level will require huge investments at all the stages of the oil and gas sector (exploration / production / oil services / infrastructures…)
TRENDS IN EAST AFRICA
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AGENDA
Africa is a growth relay for the oil & gas sector
A strong need to unlock financing in a difficult environment
New and adequate financing techniques for independent E&Ps
Accompanying the oil sector growth in Africa and developing local content.
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A DIFFICULT AFRICAN ENVIRONMENT
African countries are almost all rated as speculative grade, when rated.
The legal environment can be constraining and companies / Banks have to face and adapt to various type of legal framework
Political uncertainties
Modern and expensive equipment is required for E&P in difficult areas (deep and ultra deep-water)
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PROBLEMATICS FOR INDEPENDENT OIL PRODUCERS IN AFRICA
Buying assets through tenders or direct negotiations
Buying companies owning producing assets or licenses
Establishing a JV with local partners
Managing independence Farming in / Farming out with Independents
and/or Big names Finding relevant partners Choosing appropriate contractors at an effective
cost rate & time schedule
Financing exploration, development and acquisitions
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AGENDA
Africa is a growth relay for the oil & gas sector
A strong need to unlock financing in a difficult environment
New and adequate financing techniques for independent E&Ps
Accompanying the oil sector growth in Africa and developing local content.
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EVOLVING FROM TRADITIONAL CORPORATE AND PRE-EXPORT FINANCE
Corporate Financing: Not relevant for independents characterized by
limited Balance Sheets and P&L accounts and no credit rating
Traditional corporate banks are often not comfortable with emerging countries.
Pre-Export Financing: Based only on the exported portion of existing
production Small production: facility insufficient to fund
asset development Lack of flexibility
Historically designed for large E&Ps, traditional financing techniques are not relevant for smaller / independent E&Ps
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Project Finance Quality of the Sponsor Lack of flexibility Development risk (full asset development)
New Equity Cost Dilution of existing shareholders Time schedule
POTENTIAL ALTERNATIVES
Need for an adequate financing tool for independent producers
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EXPLORATION
DEVELOPMENT
BEFORE FIRST OIL
AFTER FIRST OIL
• High risk-High reward
• Investors’ role
• Development risk
• Investors’/banks’role
• Operational risk
• Banks’ role
IPO/equityFarm-Out
Pre firstOil RBL
PRIVATE PLACEMENT / PARTNERSHIP
BRIDGE FINANCING
RESERVE BASED LENDING
FINANCING TOOLS AND PROJECT PHASING
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RESERVE BASED LENDING: AN ADAPTED TOOL
Financing Based on cash flows deriving from the development of the reserves, not corporate risk analysis
Detailed and recurrent technical due diligence on the financed oil & gas assets
A borrowing base approach evolving in line with development of reserves and production level
Strong structure allowing to accommodate country risk and even limited asset portfolios
Tailored to the financing needs and company development from a single asset to multi-asset, multi country portfolio
Various facility types depending on the purpose: Senior Debt, Stretched Facility, Junior/Mezzanine Debt
Flexibility in balancing contributions from equity holders and debt providers
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DIVERSIFIED RBL TYPE FACILITIES TO ADRESS VARIOUS FINANCING NEEDS
BRIDGE
Facility: Amount fixed on a case by case basis
Purpose: To finance acquisitions or licenses purchase
Tenor: Short-term, until repaid by Senior facility
SENIOR RBL FACILITY
Facility: Fully revolving credit facility
Borrowing Base: Based on Proved Reserves + a portion of Probable in certain cases
Purpose: To finance development and production on the existing reserve base, working capital
and eventually acquisition
Tenor: Medium-term (5years & more)
Collateral: Charge on interests in oil & gas properties and major contracts
Collection Account : Domiciliation of revenues at the banking agent’s counters
Amortization: According to cash flow ratios
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STRETCHIdentical to the Senior Facility, except:
Amount: additional amount based on stretched CF ratios
Purpose: Development of the existing reserve base and acquisition
Amortization: According to cash flow ratios (less restrictive than senior tranche)
MEZZANINEFacility: Amount fixed on a case by case
basis (subordinated credit facility)
Purpose: Acquisition
Tenor: Senior facility Tenor + 1 day
Amortization: Bullet
DIVERSIFIED RBL TYPE FACILITIES TO ADRESS VARIOUS FINANCING NEEDS
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AGENDA
Africa is a growth relay for the oil & gas sector
A strong need to unlock financing in a difficult environment
New and adequate financing techniques for independent E&Ps
Accompanying the oil sector growth in Africa and developing local content.
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BANKS NEED TO ADAPT TO CURRENT MARKET TRENDS AND PROVIDE COMPREHENSIVE SOLUTIONS
The market is currently consolidating, more and more clients request Banks to provide acquisition financings needs as well as innovative solutions for the development of their oil & gas assets.
Banks have to evolve to provide comprehensive solutions and to be involved in the life E&P projects:
Equity raising manager and/or participator Acquisition financing Financing of pre-first oil facilities Financing of the local oil services sector which is
a key necessity for the development of the independents E&P assets
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The E&P sector will not grow and thrive without the simultaneous growth of the associated related oil sector: mainly the infrastructure and the oil services sectors
Such development will not be possible without the strong implication of the local actors
The oil services sector through the lack of availability of equipment for the independent is opening the door for the development of the local content oil companies
Promoting the local content is becoming one of the key elements to ensure a further development of the African continent oil & gas industry
A NEED TO EXPAND FINANCING FROM E&P TO OIL SERVICE AND OTHER SUPPORT ACTIVITIES
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DEVELOPING LOCAL CONTENT
Africa needs to effectively exploit its vast natural resources and with the support of the international finance community’s active participation.
Certain countries like Nigeria are trying hard to develop local skills through the transfer of technologies
Local content bill (45% of local content in the oil sector by 2008)
Creation of the Nigerian Content Support fund (local oil groups working as subcontractors)
A new market opportunity for banks, willing to provide innovative structured financing based for example on:
Assignment of oil services contracts Pledge on assets Pledge on receivables / fares / revenues
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CONCLUSION
Natixis is dedicated to provide its clients with all its experience and knowledge in:
Introduction to reliable professionals and partners
Technical and advising
From debt to equity financing
Financing development and acquisition
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THANK YOU
Michel JAYStructured Finance & Natural ResourcesGlobal Head of Upstream & Commodity Structured FinanceEnergye-mail: [email protected] phone: + 33 (0) 1 58 19 94 44
Laure PIRONNEAUHead of Africa & Middle-EastUpstream & commodity structured FinanceEnergye-mail: [email protected]: + 33 (0) 1 58 19 28 79
