Project Finance in Oil & Gas Exploration Projects

SSRN Electronic Journal, 2012

The Chad-Cameroon oilfield development and pipeline project was a major attempt by the international community to leverage an extractive industries project to promote development in a fragile state. The project is notable for its size and ambition, and for the intensive participation of multilateral institutions, multinational corporations, governments, and civil society. The centerpiece of the project was an elaborate revenue management program designed to funnel oil revenues to priority sectors in Chad. However, unanticipated developments, including a deteriorating security situation, gradually eroded the Chadian government's compliance with the program, resulting in disbursement suspensions and renegotiations. The program was prematurely terminated when the government of Chad fully prepaid its remaining financial obligations to the World Bank after just seven years of the project's anticipated 20-30 year lifespan. Once hailed as a newly emergent model for development, the project now offers important lessons stressing the need for greater pragmatism in the future.

2013

The purpose of this study is to show the importance of using project finance in infrastructure investments in developing countries. The paper will be focused only on one infrastructure sector, which is energy. Structurally, power project finance has involved largely buildown-transfer (BOT) project structures and long-term contracts. The projects largely reflect a rational allocation of risks among public and private participants. Private sponsors and lenders generally assume risks for completion and performance. Governments assume substantial risks in nearly all projects, mostly in areas in which they have control, such as utility performance, currency convertibility, fuel costs, inflation, and political event. The aim of this research is to empirically examine a financing and governance structure called Project Finance that typically funds large scale, capital intensive, infrastructure investments in risky countries. The methodology used in this paper is literature review of the ma...

Journal of Petroleum Exploration and Production Technology

This article proposes a novel methodology to solve an existing gap in benchmark definition by the adoption of statistically defined benchmarks as references to test products or technical procedures. In a win–win partnership, remuneration is made upon realistic bases of comparison being proportional to existing risks. However, establishing values for benchmarks is rarely unanimous if asked to different persons involved in drilling analysis. Conventional benchmarking, which enhances few results and leaves aside poor operational performances, produces references that do not properly represent the geological environment. Nonetheless, when testing new products, it serves as reference to remunerate suppliers. The review of an optimization program, which resulted in a world record of drilling rate of penetration, reveals the financial magnitude of the savings produced, proposing the method discussed as a reliable solution to the development of technology.

SSRN Electronic Journal, 2012

We investigate Project Finance as a private response to ine¢ ciencies created by weak legal protection of outside investors. We o¤er a new illustration that law matters by demonstrating that for large investment projects, Project Finance provides a contractual and organizational substitute for investor protection laws. Project Finance accomplishes this by making cash ‡ows veri…able, thereby enhancing debt capacity. Two features of Project Finance make cash ‡ows veri…able: (i) contractual arrangements made possible by structuring the Project Company as a single, discrete project legally separate from the sponsor; and (ii) private enforcement of these contracts through a network of project accounts that ensures lender control of project cash ‡ows. Comparing the incidence of bank loans for Project Finance with regular corporate loans for large investments ("Corporate Debt Finance"), we show that Project Finance is more likely in countries with weaker laws against insider stealing and weaker creditor rights in bankruptcy. Our identi…cation relies on di¤erence-in-di¤erence tests that exploit exogenous country-level changes in legal rules.

1982

The Negotiator, 2015

Model contracts play a principal role in reducing transaction costs. They offer parties a series of rules, which allocates risk so that delays, disagreements, over-expenditures, and under-capitalizations can be managed (or avoided altogether). The best model contracts are highly responsive, adapting to new realities. Accordingly, top drafters are pressed to doggedly re-evaluate whether or not their model rules are optimal in light of the ever-changing nature of law and technology. Modern hydraulic fracturing is a disruptive technology that shifted the incentives within oil and gas joint venture projects. Drafters are adjusting their contracts to adapt. Experimentation with model rules is presently occurring in jurisdictions such as Australia, the United States and Canada, where unconventional resources abound. This adaptation of model contracts has created a debate as to which model rules will be best for unconventional shale projects. As a contribution, this article first introduces how modern hydraulic fracturing has changed risk allocation in joint ventures, and then considers a couple of the central debates over what changes might need to be made so that model contracts can most successfully adjust to this new reality.

SSRN Electronic Journal, 2013

Project finance is the process of financing a specific economic unit that the sponsors create, in which creditors share much of the venture's business risk and funding is obtained strictly for the project itself. Project finance creates value by reducing the costs of funding, maintaining the sponsors financial flexibility, increasing the leverage ratios, avoiding contamination risk, reducing corporate taxes, improving risk management, and reducing the costs associated with market imperfections. However, project finance transactions are complex undertakings, they have higher costs of borrowing when compared to conventional financing and the negotiation of the financing and operating agreements is time-consuming. In addition to describing the economic motivation for the use of project finance, this paper provides details on project finance characteristics and players, presents the recent trends of the project finance market and provides some statistics in relation to project finance lending activity between 2000 and 2014. Statistical analysis shows that project finance loans arranged for U.S. borrowers have higher credit spreads and upfront fees, and have higher loan size to deal size ratios when compared with loans arranged for borrowers located in W.E. On the contrary, loans closed in the U.S. have a much shorter average maturity and are much less likely to be subject to currency risk and to be closed as term loans.

Principles of Project Finance, 2002

This chapter reviews the private-sector debt markets for project finance, in particular commercial banks (cf. §3.1) and bond investors (cf. §3.2). The uses of mezzanine or subordinated debt (cf. §3.3), leasing (cf. §3.4), and vendor finance (cf. §3.5) are also considered. Loans and guarantees provided by export credit agencies and multilateral and bilateral development banks, mainly for projects in developing countries where the private sector is not willing to assume the credit risk in the country concerned, are discussed in Chapter 11 (but cf. §3.6). Private-sector project finance debt is provided from two main sources-commercial banks and bond investors. Commercial banks provide long-term loans to project companies; bond holders (typically long-term investors such as insurance companies and pension funds) purchase long-term bonds (tradable debt instruments) issued by project companies. Although the legal structures, procedures, and markets are different, the criteria under which debt is raised in each of these markets are much the same. ("Lender" is used in this book to mean either a bank lender or a bond investor.

2014

Funding projects through Project Finance arrangements in contemporary Economic and Corporate and economic governance has become the catalyst for developing capital intensive projects in most Organizations and Nations. Unlike corporate finance, project finance is a non-recourse debt that is financed through cash generated from the project. This paper examined the increasing reliance on project finance in recent times by assessing its merits over traditional corporate financing and described the operation of a typical Project Finance Scheme. Using a Descriptive Analysis, the theoretical underpinnings of this subject matter were assessed. Historical data on project costs using project financing were evaluated. The study revealed that the successful completion of most capital intensive projects were initiated and completed through project finance schemes. However, the ultimate key to projects finance is the accurate estimation and evaluation of project viability.

Journal of Islamic Economics , Banking and Finance, 2013

The investment profile and particularly the horizon of traditional debt financing for projects seldom matches the returns on assets, particularly in the resources and infrastructure sectors where assets have a lengthy construction phase before realising a return. This mismatch in investment duration and risk-return profile is a key weakness of the Western approach to limited recourse borrowing under project financing conventions. The motives underlying Islamic finance however differ from the Western approach permitting longer-term investments and profit-sharing arrangements, subject to the strict practice of Shari´ah law. This paper highlights the advantages of Islamic investment practices over traditional approaches in project financing which can potentially fill a significant gap in funding options for firms in the global resources sector.

The way ahead, 2014

OPEC Energy Review, 2008

The problem studied is that of valuing investment projects of an international oil company subject to tax schemes that vary from one country to another. The existing disparities in the tax treatment of interest paid can lead the firm to seek an optimal allocation of its debt capacity among the various projects. In this context, the generalised ATWACC (After-Tax Weighted Average Cost of Capital) method presents numerous advantages over standard methods and is particularly well suited to the valuation of oil-field development projects where debt financing differs from the amount that would correspond to the debt ratio targeted by the firm at the corporate scale. In this paper, we discuss adapting the generalised ATWACC method to the specificities of the oil industry and offer new proof of its validity based on a model that maximises, under constraints, the firm's equity value. 197 A new proof of a straightforward, rigorous method 201 OPEC Energy Review September 2008

2000

The use of non-recourse project financing has grown steadily in emerging markets, especially in basic infrastructure, natural resources and the energy sector. Because of its cost and complexity, project finance is aimed at large-scale investments. The key is in the precise estimation of cash flows and risk analysis and allocation, which enables high leverage, and in ensuring that the project can be easily separated from the sponsors involved. Project finance is more difficult in emerging countries, which tend to pose unpredictable risks with unfavorably biased results. This imposes the need to introduce contractual, financing and structural elements that yield the maximum possible expatriation of operating flows.

STUDIES AND SCIENTIFIC RESEARCHES. ECONOMICS EDITION

With a caring and professional approach the project management activity may prove to be difficult enough. Many specialists in this field indicates that a project plan can be assimilated to a "roadmap", so, for a clear destination, the shortest path is of most pronounced efficacy in order to achieve that purpose, to travel the distance between a current state and desired state and all this is established and configured before we hit the road, all risks included, expected or not. In this paper we present a draft European-style management, which intends to conduct a communion of all the decision makers involved in creating a healthier community.