petrolera zuata
DESCRIPTION
presentation by Aamir and Himanshu on petrolera zuata project, venezuala.TRANSCRIPT
Aamir AnsariHimanshu saigal
Petrozuata is offered $ 2.5 billion oil development project in Venezuela. It takes place in 1997 as a project sponsor, Conoco and PDVSA (Venezuela’s national oil company), plan to meet with various development agencies and credit rating agencies in respect of the proposed financial structure. The authors hope to raise part of the $ 1.5 billion of debt in the capital markets, which will require an investment rating.
.1.
Economical instability
before 1960s
2.Nationalization of oil companies
3. Formation of PDVSA
4. In 1993 Conoco came in
joint venture
5. Petrozuata planned to build 125
mile pipeline
6. DuPont & Conoco agreed to purchase 104,000 BCDP from
Petrozuata
Petrolera Zuata
Conoco Incorporated
(USA)
Petróleos de Venezuela (PDVSA)
(50.1% Interest)
(49.9% Interest)
Currently 10th largest oil company in the world
State-owned and formed through the nationalization of other companies’ assets (Mobil, Exxon, etc)
Despite government instabilities, PDVSA has a strong track record
Subsidiary of DuPont (USA) Has operations in over 200 countries 15000 employees in over 40 countries. Known for expertise in technology and
extraction processes
Petrozuata was formed in 1997 by PDVSA and Conoco
Three key components Production of heavy oil from a new field in
Venezuela’s interior Transportation of the oil to coast via pipeline Transportation of oil to refineries along the US
Gulf Coast
Estimated $2.425 billion in costs Conoco (50.1%) and PDVSA (49.9%)
together invest $975 million Remainder $1.450 billion to be financed
through debt
1. Saudi Arabia2. Russia3. United Arab Emirates4. Kuwait5. Iraq6. Nigeria7. Qatar8. Iran9. Angola10. Venezuela
In liquid markets, greater availability of capital
Developing countries. But there are risks -
Illiquid markets Foreign Exchange Risk
A credit rating is an evaluation of the credit worthiness of a debtor, especially a business (company) or a government.
The evaluation is made by a credit rating agency of the debtor's ability to pay back the debt
It is based on an analysis of the issuer's financial condition and profit potential
Main providers: S&P, Moody’s, Fitch
Conoco was rated single A PDVSA was rated single B
High leverage ratio (60%) Bank debt, the traditional source of debt and
Rule 144A project bonds
Sources of Funds in million %
Commercial Bank Debt $450 18.6
Rule 144A Project Bond $1,000 41.2
Paid-in Capital (incl. shareholder loans) $445 18.4
Operating Cash Flow $530 21.9
Total $2,425 100%
Is a relatively new security gaining popularity
Has greatly increased the liquidity of 144A bonds
Can waive the time consuming SEC registration process (implied it is less expensive to issue Rule 144A bond compared to other types of bonds)
Can only be sold to professional investors
(at least has $100 million in investible assets)
Popular in emerging markets Often involves syndicates Project is separate from legal and financial
responsibilities of investors Used for large investments that are long-
term and singular (cannot be commingled) Cash-flow from third parties is predictable Projects and their lives are finite Petrozuata used project financing to pay
down large debts without the owners being accountable for deficits
Precompletion risk No operations = no cash flow coming from the
investment Postcompletion risk
Occur when project is operating and effect the cash flows
Political risk Macroeconomic events in Venezuela
Project finance holds less risk for the partners in the joint venture than simply financing it themselves too expensive local governments offer loans to develop oil fields
Protects the companies from bankruptcy risks because they have limited responsibility the project is regarded as legally independent equity returns are increased and the companies’
own debt capacity isn’t used up.
Project finance seems perfect as it allows the company to rid itself of responsibility and increase equity returns However, it eliminates co-insurance and
diversification benefits within the company so the free lunch is a myth.
High legal costs associated with the setup
Difficult to exit syndications
Dupont purchased Conoco in 1981 after high oil prices hurt profits during the 1970s
Dupont decided to sell Conoco in 1998, shortly after the Petrozuata deal, when oil prices were at their lowest levels in a decade
The sale lowered Dupont’s debt Spinning off Conoco would help it be an
industry leader, which was impossible under Dupont—conflicted with Dupont’s strategic positioning
Benchmark price of crude oil falls $5 per barrel over 6 months
Inflation in Venezuela causes interest rates to jump from 25% to 70%
Cost overrun for Petrozuata is announced
Petrozuata encountered some of the types of risk mentioned earlier
Cost of project increases by $553 million The costs ended up being covered by
sponsors Petrozuata is able to produce larger
quantities than expected Investors made the right choice
Conoco has merged with Philips Petroleum and is the 3rd largest integrated energy company
PDVSA is starting to collect oil from some newly found sources despite a worker strike at the end of 2002
Petrozuata is making new contracts and continues to run well they still have an their B rating
Any questions?