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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
Africa is a growth relay for the oil & gas
sector
A strong need to unlock financing in adifficult environment
New and adequate financing techniques forindependent 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 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
Africa is a growth relay for the oil & gas
sector
A strong need to unlock financing in a difficultenvironment
New and adequate financing techniquesfor independent E&Ps
Accompanying the oil sector growth in Africa
and developing local content.
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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
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.
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