Scribd
Upload
854 views1 page

Petrozuata Questions - SPR - 2015

This document provides case study questions about the proposed Petrolera Zuata, Petrozuata C.A. oil field development project in Venezuela. The $2.4 billion project is being planned by Conoco and Maraven in January 1997. Key questions for the sponsors include whether the project will receive an investment grade rating and how to structure the financing to remain economically attractive if it does not receive such a rating. The case study questions examine how to finance the project, address its risks, evaluate different leverage ratios, assess the valuation and cost of capital methodology, determine the optimal debt type, predict the bond rating, and identify important sensitivity analyses.

Uploaded by

daweizhang
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
854 views1 page

Petrozuata Questions - SPR - 2015

This document provides case study questions about the proposed Petrolera Zuata, Petrozuata C.A. oil field development project in Venezuela. The $2.4 billion project is being planned by Conoco and Maraven in January 1997. Key questions for the sponsors include whether the project will receive an investment grade rating and how to structure the financing to remain economically attractive if it does not receive such a rating. The case study questions examine how to finance the project, address its risks, evaluate different leverage ratios, assess the valuation and cost of capital methodology, determine the optimal debt type, predict the bond rating, and identify important sensitivity analyses.

Uploaded by

daweizhang
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Advanced Corporate Finance

Taylor Begley
Spring 2015

Case Study Questions


Petrolera Zuata, Petrozuata C.A.

Petrolera Zuata, Petrozuata C.A. (Petrozuata) is a proposed $2.4 billion oil field development project
in Venezuela. The case is set in January 1997 as the project sponsors, Conoco (a DuPont subsidiary)
and Maraven (a PDVSA subsidiary), are planning to meet with various development agencies in
Washington D.C. and rating agencies in New York city regarding the proposed financial structure.
The key questions facing the sponsors is whether the project will achieve an investment grade rating
and, if not, how to finance the deal so that it remains economically and operationally attractive.

1. How should PDVSA finance the development of the Orinoco Basin? What are the costs and
benefits of using project finance instead of traditional internal debt finance? Does project
finance increase the total debt capacity of PDVSA? Does project finance lower the overall
cost of capital to PDVSA?
2. What are Petrozuatas three or four most important risks? How does the deal structure
address these risks? Who would bear these risks if the project were financed internally by
PDVSA instead?
3. Look at the Petrozuata model spreadsheet in portal. As currently envisioned, debt will
comprise 60% of the funds needed for the project. Would you recommend a higher or lower
leverage ratio? What happens to the minimum debt service coverage ratio and internal rate
of return on equity (IRR) as project leverage increases to 70% of project funds? Decrease to
50%?
4. What is unsatisfactory in the valuation used in the spreadsheet? What do you think of the
cost of capital methodology used by Petrozuata planning team? Try to build your own
valuation model, searching for assumptions you did not like.
5. What kind of debt (agency debt, bank debt, or Rule 144A bonds) should the sponsors use to
fund the deal? What are the advantages and disadvantages of each kind of debt?
6. Will the project bonds receive an investment grade rating? What is the weakest link in the
project?
7. What kind of sensitivity analysis would you do to verify the projects economics?

You might also like