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BP Amoco Project Finance Strategies

This document discusses BP Amoco's investment in the Azerbaijan International Operating Company (AIOC) which is developing oil fields in Azerbaijan. BP Amoco owns 34.1% of AIOC. The background provides details on a $1.9 billion early oil project and the need for $8-10 billion to fully develop the fields. The project faces political, financial, transportation and industry risks. The document analyzes options for financing the full field development, including using project finance, corporate finance or a dual financing strategy. It concludes that a dual financing strategy best balances the various risks and timeliness of raising funds.

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vinay5209
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1K views11 pages

BP Amoco Project Finance Strategies

This document discusses BP Amoco's investment in the Azerbaijan International Operating Company (AIOC) which is developing oil fields in Azerbaijan. BP Amoco owns 34.1% of AIOC. The background provides details on a $1.9 billion early oil project and the need for $8-10 billion to fully develop the fields. The project faces political, financial, transportation and industry risks. The document analyzes options for financing the full field development, including using project finance, corporate finance or a dual financing strategy. It concludes that a dual financing strategy best balances the various risks and timeliness of raising funds.

Uploaded by

vinay5209
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

BP Amoco – A Case Study

On Project Finance

Presented By,
Sanjiv Kumar Singh (49)
Sanjiv Kumar Singh (48)
Ankita Chauhan (05)
Vinay Gupta (58)
Vikas (60)
Manjeet Malik (27)
Background
BP Amoco investment of 34.1% in AIOC developing oil fields
in the Azerbaijani Sector.
Completed $ 1.9 Billion (Escalated from $1 Billion) Early oil
Project – 100,000 BPD.
BP – General Corporate Finance.
Amoco –Finance through two multilateral Agencies.
Full Field Development project comprised of three stage.
Investment needed of about $ 8 - $ 10 Billion.
Estimated Reserves of 4.5 to 5 Billion Barrels.
Stage 1 capital expenditure to start within a year.
Background Cont…
Newly Formed Azerbaijan.
New & Untested Constitution.
Declining Oil Reserves (Reserve Risk) – 70% 8%.
Political Instability, High Unemployment Rate, Oil dependent
Economy.
Not so peaceful neighbors (Russia & Iran).
Geo Politically Challenging Territory.
MEP (Main export Pipeline) Feasible only when proven
reserves of 6 billion Barrels.

? How BP Amoco should Finance this investment?


Project Risks
Political Risks
• Leadership issues – Change in leadership could create
disputes.
• Russia & Iran claiming rights over the reserves.
• AIOC could loose its exclusive right to develop the fields.
• Dispute with Armenia.
Financial Risks
• Financial Crisis led to liquidity Crunch.
• Increasingly difficult to get finance even through
multilateral Agencies.
• 450 basis points above LIBOR.
Project Risks Cont…
Transportation Risks
• Pipeline not a long term solution due to political &
economical risks.
• Transneft (Russian Owned) controlled pricing & service
decisions.
• Pipeline also crossed Chechnya.
• Transit fees to be raised by 5 folds through Bosporous Strait.
Industry Risks
• Reserve & Commodity Price Risks.
• CIPCO withdrew its operation after finding it uneconomical.
• High Volatility in crude prices. Prices plummeted to $10
though estimates were of $14 per barrel.
• BP Amoco net Income down by 50%, 20 % budget
Issues
 Whether to refinance Amoco’s project loan from
early oil project.
Benefits
 Refinancing may lead to lower cost of funds.
Costs
Negative signal to the MIG members and could
jeopardize AIOC’s relationship with the IFC & EBRD.
Decision Options – Cost Benefit Analysis
 How to Finance Full field Development Project?
1. Using Project Finance.
Benefit
 Allowed Leveraging of investment through outside
funds.
 Shielding from political risks.

Disadvantage
Time needed to close the deal.
High cost of debt.
Decision Options – Cost Benefit Analysis
2. Go for Corporate Finance.
Benefits
 Lower cost of funds.
 Quick release of funds.

Disadvantage
May lead to higher cost of funds for other members.
The consortium might get dissolved.
Disadvantageous precedents for future financings.
Decision Options – Cost Benefit Analysis
3. Dual Financing Strategy
Benefits
 Relatively lesser cost of funds.
 Relatively lesser time to accumulate funds.

Disadvantages
Higher interest rates for other members of the group.
Other members might find it difficult to raise internal
funds given the bleak present scenario.
Conclusion
Using dual financing strategies taking various factors
into consideration.
?
THANK YOU

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