11thAfrican_Laure Pironneau & Michael Jay

7/29/2019 11thAfrican_Laure Pironneau & Michael Jay

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Unlocking Upstream Financing for AfricasOil 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 difficultenvironment

New and adequate financing techniques forindependent E&Ps

Accompanying the oil sector growth in Africa

and developing local content.


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AFRICA IS A KEY CONTINENT IN TERMS OFRESERVES POTENTIAL AND DISCOVERIES

Africas reserves currently represent near 10% of

the Worldwide reserves, i.e. approx. 105 billionbarrels, but rate of new oil reserves discoveries inAfrica has been the fastest in the world in the pastdecade, leading to a growing importance of Africain the worldwide reserves.

Africas oil is also a growing part of USAs oilimportations. Sub-Saharan Africa is said torepresent 25% of North American oil imports by2015 compared to approx. 15% at present.

Africa produced over 9 million bpd of oil in 2005.16 countries are currently producing and prospectsare high in at least another 5 countries.


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AFRICA BENEFITS FROM SIGNIFICANTSTRENGTHS

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 (inparticular on onshore and shallow water concessionsaccessible to the independents).

Attractive fiscal terms in most countries forindependents and local content companies

An oil & gas upstream sector opened to foreignpartners


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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 marginalassets

Local capacity creation within the indigenous privatesector

The high price of oil allows lowered breakeven costs

Progress in term of technique also allows moreaggressiveexploration

New emerging small E&P companies


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The region is still largely under-explored

Geologists assess that there should be important oildiscoveries thanks to the progress in the techniquesof explorations

Onshore and offshore potential is opening the doorsfor Majors and independents companies

Countries like Uganda should start producing at a rateof 60,000 bpd of oil in 2008.

This part of the African continent to successfully reacha significant production level will require hugeinvestments at all the stages of the oil and gas sector(exploration / production / oil services /

infrastructures)

TRENDS IN EAST AFRICA


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AGENDA


sector

A strong need to unlock financing in adifficult environment





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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 andcompanies / Banks have to face and adapt to varioustype 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 OILPRODUCERS IN AFRICA

Buying assets through tenders or direct negotiations

Buying companies owning producing assets orlicenses

Establishing a JV with local partners

Managing independence

Farming in / Farming out with Independentsand/or Big names

Finding relevant partners

Choosing appropriate contractors at an effectivecost rate & time schedule

Financing exploration, development and acquisitions


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AGENDA


sector


New and adequate financing techniquesfor independent E&Ps




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EVOLVING FROM TRADITIONALCORPORATE AND PRE-EXPORT FINANCE

Corporate Financing:

Not relevant for independents characterized bylimited Balance Sheets and P&L accounts and no

credit ratingTraditional corporate banks are often not

comfortable with emerging countries.

Pre-Export Financing:

Based only on the exported portion of existingproduction

Small production: facility insufficient to fundasset development

Lack of flexibility

Historically designed for large E&Ps, traditionalfinancing techniques are not relevant for smaller/ independent E&Ps


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Project Finance

Quality of the SponsorLack 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/banksrole

Operational risk

Banks role

IPO/equity

Farm-OutPre first

Oil RBL

PRIVATEPLACEMENT /PARTNERSHIP

BRIDGEFINANCING

RESERVEBASED LENDING

FINANCING TOOLS AND PROJECT PHASING


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RESERVE BASED LENDING: AN ADAPTED TOOL

Financing Based on cash flows deriving from the developmentof the reserves, not corporate risk analysis

Detailed and recurrent technical due diligence on the financedoil & gas assets

A borrowing base approach evolving in line with developmentof reserves and production level

Strong structure allowing to accommodate country risk andeven 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 TOADRESS 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 ofProbable in certain cases

Purpose: To finance development and production on theexisting reserve base, working capital andeventually acquisition

Tenor: Medium-term (5years & more)

Collateral: Charge on interests in oil & gas properties andmajor contracts

Collection Account : Domiciliation of revenues at the banking agentscounters

Amortization: According to cash flow ratios


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STRETCH

Identical to the Senior Facility, except:

Amount: additional amount based on stretchedCF ratios

Purpose: Development of the existing reservebase and acquisition

Amortization: According to cash flow ratios (lessrestrictive than senior tranche)

MEZZANINE

Facility: Amount fixed on a case by casebasis (subordinated credit facility)

Purpose: Acquisition

Tenor: Senior facility Tenor + 1 day

Amortization: Bullet

DIVERSIFIED RBL TYPE FACILITIES TOADRESS VARIOUS FINANCING NEEDS


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AGENDA


sector



Accompanying the oil sector growth in

Africa and developing local content.

BANKS NEED TO ADAPT TO CURRENT MARKET


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BANKS NEED TO ADAPT TO CURRENT MARKETTRENDS AND PROVIDE COMPREHENSIVESOLUTIONS

The market is currently consolidating, more and

more clients request Banks to provide acquisitionfinancings needs as well as innovative solutions forthe development of their oil & gas assets.

Banks have to evolve to provide comprehensivesolutions 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 isa key necessity for the development of theindependents E&P assets


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The E&P sector will not grow and thrive without the

simultaneous growth of the associated related oilsector: mainly the infrastructure and the oil servicessectors

Such development will not be possible without the

strong implication of the local actors

The oil services sector through the lack of availabilityof equipment for the independent is opening the doorfor the development of the local content oil companies

Promoting the local content is becoming one of thekey elements to ensure a further development of theAfrican 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 resourcesand with the support of the international finance

communitys active participation.

Certain countries like Nigeria are trying hard to developlocal 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 provideinnovative 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 andpartners

Technical and advising

From debt to equity financing

Financing development and acquisition


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THANK YOU

Michel JAYStructured Finance & Natural Resources

Global Head of Upstream & Commodity StructuredFinance

Energy

e-mail: [email protected]: + 33 (0) 1 58 19 94 44

Laure PIRONNEAUHead of Africa & Middle-East

Upstream & commodity structured FinanceEnergy

e-mail: [email protected]: + 33 (0) 1 58 19 28 79

11thAfrican_Laure Pironneau & Michael Jay

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