dr. b.o. oramah innovative solutions in financing local entrepreneurs: structured oil service deals...

Dr. B.O. OramahDr. B.O. OramahDr. B.O. OramahDr. B.O. Oramah

Innovative Solutions In Financing Innovative Solutions In Financing Local Entrepreneurs:Local Entrepreneurs:

Structured Oil Service DealsStructured Oil Service Deals

Innovative Solutions In Financing Innovative Solutions In Financing Local Entrepreneurs:Local Entrepreneurs:

Structured Oil Service DealsStructured Oil Service Deals

Director (Planning & Development Director (Planning & Development Department)Department)

African Export-Import Bank (Afreximbank)African Export-Import Bank (Afreximbank)Cairo, EgyptCairo, Egypt

Director (Planning & Development Director (Planning & Development Department)Department)

African Export-Import Bank (Afreximbank)African Export-Import Bank (Afreximbank)Cairo, EgyptCairo, Egypt

ByBy

Paper Presented at the 10Paper Presented at the 10thth African Oil & Gas, Trade & Finance African Oil & Gas, Trade & Finance

ConferenceConference

Hotel El-Aurassi, Algiers, AlgeriaHotel El-Aurassi, Algiers, Algeria

April 2 – 5, 2006April 2 – 5, 2006

NOT AN OFFICIAL UNCTAD RECORD

Dr. B.O. Oramah – Innovative Solutions In Financing Local Entrepreneurs: Structured Oil Service Deals 2

1.1. INTRODUCTIONINTRODUCTION1.11.1 PreamblePreamble

The Oil & Gas Sector (the “Sector”) still The Oil & Gas Sector (the “Sector”) still remains an enclave with limited linkages to remains an enclave with limited linkages to other sectors of the economies of African Oil other sectors of the economies of African Oil Producing nations.Producing nations.That notwithstanding, the Sector constitutes That notwithstanding, the Sector constitutes the backbone of the economies of the African the backbone of the economies of the African Oil Producing nations.Oil Producing nations.The Sector accounts for over a third of the total The Sector accounts for over a third of the total merchandise export revenues of the Continent.merchandise export revenues of the Continent.


Against this background, African Export-Import Against this background, African Export-Import Bank (the “Bank” or “Afreximbank”) considers Bank (the “Bank” or “Afreximbank”) considers it as a Strategic Sector and supports activities it as a Strategic Sector and supports activities within the Sector, especially operations within within the Sector, especially operations within the Upstream segment of the Industry.the Upstream segment of the Industry.Afreximbank is therefore pleased to be invited Afreximbank is therefore pleased to be invited to participate in this Conference and to share to participate in this Conference and to share with delegates its experiences in the financing with delegates its experiences in the financing and promotion of Local Content in the Sector and promotion of Local Content in the Sector in Africa.in Africa.


Afreximbank (www.afreximbank.com) has Afreximbank (www.afreximbank.com) has come a long way in bringing Structured come a long way in bringing Structured Finance to Support Local Entrepreneurs Finance to Support Local Entrepreneurs operating in the Upstream segment of the operating in the Upstream segment of the Sector. From 1995 to 2005, the Bank’s credit Sector. From 1995 to 2005, the Bank’s credit approvals in favour of the Sector amounted approvals in favour of the Sector amounted to USD1.69 billion.to USD1.69 billion.

Prior to the introduction of Afreximbank’s Prior to the introduction of Afreximbank’s Structured Oil Field Services Financing, Structured Oil Field Services Financing, Corporate Finance was the Instrument of Corporate Finance was the Instrument of Choice in Financing Operators in the Sector.Choice in Financing Operators in the Sector.


The consequence was that Oil Field Services The consequence was that Oil Field Services

remained under the control of Large remained under the control of Large

Multinationals with very little local Multinationals with very little local

participation in the Sector as they were participation in the Sector as they were

unbankable under corporate finance mind-set.unbankable under corporate finance mind-set.

Afreximbank’s activities in the Sector seems to Afreximbank’s activities in the Sector seems to

be reviving the interest of International banks be reviving the interest of International banks

in the financing of Local Entrepreneurs in the financing of Local Entrepreneurs

operating in Africa’s Oil & Gas Sector.operating in Africa’s Oil & Gas Sector.


2. Africa’s Oil & Gas Sector2. Africa’s Oil & Gas Sector2.1 Activities in the Oil & Gas Sector2.1 Activities in the Oil & Gas Sector

Activities in the oil sector can be broadly categorized Activities in the oil sector can be broadly categorized into:into:a) Upstream Activities:a) Upstream Activities:

Exploration; andExploration; andProduction of crude.Production of crude.

Oil Field Services support the above activitiesOil Field Services support the above activities

b) Downstream Activities:b) Downstream Activities:Refining; andRefining; andDistribution and SalesDistribution and Sales..


2.2 Major Oil Producers in Africa2.2 Major Oil Producers in Africa

CountryCountryProven Proven

Reserves Reserves (million (million barrels)barrels)

20032003

ActualActualNear-Term Near-Term Forecast Forecast a)a)

Production Production (bpd)(bpd)20032003

Production Production (bpd)(bpd)20042004

Production Production (bpd)(bpd)

1. Nigeria1. Nigeria 35,876.235,876.2 2,166.32,166.3 2,356.82,356.8 2,449.02,449.0

2. Libya2. Libya 39,126.039,126.0 1,431.91,431.9 1,580.71,580.7 1,640.01,640.0

3. Angola3. Angola 11,350.011,350.0 942.4942.4 1,311.41,311.4 1,373.01,373.0

4. Algeria4. Algeria 8,801.08,801.0 875.0875.0 988.8988.8 1,300.01,300.0

5. Egypt5. Egypt 3,700.03,700.0 618.5618.5 594.6594.6 710.0710.0

6. Gabon6. Gabon 2,499.02,499.0 242.5242.5 234.5234.5 269.0269.0

7. Congo Brazzaville7. Congo Brazzaville 1,700.01,700.0 65.765.7 69.369.3 90.090.0

8. Equatorial Guinea8. Equatorial Guinea 90.090.0 66.666.6 70.070.0 82.082.0

9. Others9. Others n/an/a 240.0240.0 239.2239.2 n/an/a

Total AfricaTotal Africa111,645.111,645.

55 7,270.47,270.4 8,385.58,385.5

a) refers to EIU 2005 forecasta) refers to EIU 2005 forecastn/a not availablen/a not available Sources: i) OPEC Annual Statistical Bulletin 2004Sources: i) OPEC Annual Statistical Bulletin 2004 ii) EIU Country Profiles 2004ii) EIU Country Profiles 2004


2.3 THE UPSTREAM SECTOR2.3 THE UPSTREAM SECTOR

2.3.12.3.1 Africa's StrengthsAfrica's Strengths

Africa accounts for about 11% of global oil Africa accounts for about 11% of global oil production and 10% of proven global oil reserves.production and 10% of proven global oil reserves.

Africa also accounted for about 8% of proven Africa also accounted for about 8% of proven global gas reserves.global gas reserves.

Increasingly higher quantities of oil and gas Increasingly higher quantities of oil and gas reserves are being found in Africa's deep and ultra reserves are being found in Africa's deep and ultra deep offshore areas, especially in west Africa.deep offshore areas, especially in west Africa.


2.3.2 2.3.2 ProblemsProblemsAmong the many problems are:Among the many problems are:

Over-dependence on foreign Over-dependence on foreign technology and skills;technology and skills;Limited linkage with the Local Limited linkage with the Local Economy; andEconomy; andLack of Finance.Lack of Finance.


2.3.3 2.3.3 PrognosisPrognosisDespite the weaknesses, activity in the Sector Despite the weaknesses, activity in the Sector is expected to continue to grow driven by:is expected to continue to grow driven by: New technologies that have facilitated deep New technologies that have facilitated deep

offshore activities;offshore activities; Events in the Middle East that have Events in the Middle East that have

accelerated geographic diversification and a accelerated geographic diversification and a surge in interest in Africa’s Oil fields;surge in interest in Africa’s Oil fields;

Current high Oil prices and good near to Current high Oil prices and good near to medium-term market prospects;medium-term market prospects;


Prolific nature of most basins;Prolific nature of most basins; Some policy support, e.g. Oil free zones Some policy support, e.g. Oil free zones

in Nigeria, Equatorial Guinea and Angola; in Nigeria, Equatorial Guinea and Angola; Most activity in the near term, especially Most activity in the near term, especially

in West Africa, will be off-shore to avoid in West Africa, will be off-shore to avoid community problems and civil strifes and community problems and civil strifes and due to huge discoveries already made;due to huge discoveries already made;


Given higher cost of off-shore activity, Given higher cost of off-shore activity,

financing requirements will increase.financing requirements will increase.

Movement to off-shore will require more Movement to off-shore will require more

logistics support increasing the importance logistics support increasing the importance

of oil field services.of oil field services.

Empowerment of Indigenous Entrepreneurs Empowerment of Indigenous Entrepreneurs

through Local Content Promotionthrough Local Content Promotion


3.3. LOCAL CONTENT: SOME ISSUESLOCAL CONTENT: SOME ISSUES3.1 3.1 Definitional IssuesDefinitional Issues

3.1.13.1.1 A Nigerian Local Content Committee defines A Nigerian Local Content Committee defines

Local Content as: “…the quantum of composite value-Local Content as: “…the quantum of composite value-

added to, or created in, the Nigerian economy through added to, or created in, the Nigerian economy through

a Utilization of Nigerian human and material resources a Utilization of Nigerian human and material resources

and services in the exploration, development, and services in the exploration, development,

exploitation, transportation and sale of Nigerian exploitation, transportation and sale of Nigerian

Crude Oil and Gas resources without compromising Crude Oil and Gas resources without compromising

quality, health, safety and environment”.quality, health, safety and environment”.


3.1.2 Key Objective of Local Content Policy is to 3.1.2 Key Objective of Local Content Policy is to

increase Local Value Added in Oil and Gas increase Local Value Added in Oil and Gas

production and Sales, i.e. the Sum of:production and Sales, i.e. the Sum of:

Rent (R)Rent (R)

Wages (W)Wages (W)

Salaries (S)Salaries (S)

Interest (I)Interest (I)

Profits (P)Profits (P)


3.1.3 Thus:3.1.3 Thus:Local Content Promotion does not necessarily mean Local Content Promotion does not necessarily mean Indigenization of Ownership of firms operating in the Indigenization of Ownership of firms operating in the SectorSectorLocal Content Policy is successful if:Local Content Policy is successful if:

where n represents all firms in the Industry ;andwhere n represents all firms in the Industry ;and

where LC = Local Content; TS= Total Spend; and t = where LC = Local Content; TS= Total Spend; and t = timetimeLC is better measured at firm levels rather than focusing LC is better measured at firm levels rather than focusing on Spends per Project.on Spends per Project.

LC LCTC t + 1 TC t)( ) > (TS TS

n

Σ I=1

(RL+WL+SL+IL+PL)t+1 (RL+WL+SL+IL+PL)t>0 n

Σ I=1

-


4.4. LOCAL CONTENT: Achievement and TargetsLOCAL CONTENT: Achievement and Targets4.1 4.1 Successful Countries includeSuccessful Countries include

NorwayNorway VenezuelaVenezuela MalaysiaMalaysia BrazilBrazil

4.2 4.2 In Africa, Nigeria appears to be the One Country In Africa, Nigeria appears to be the One Country Vigorously Pursuing this goal restricting certain Vigorously Pursuing this goal restricting certain activities to Local Firms e.g.activities to Local Firms e.g.

Certain SeismicsCertain Seismics Front End Engineering DesignsFront End Engineering Designs FabricationFabrication Geological and geophysical studiesGeological and geophysical studies Fixed PlatformsFixed Platforms FPSO Top-Sides construction, etc.FPSO Top-Sides construction, etc.


5. 5. Financing Oil & Gas ServicesFinancing Oil & Gas Services5.15.1 What Are Oil Field Services?What Are Oil Field Services?5.1.15.1.1 Restrictively seen as Logistic Services- Restrictively seen as Logistic Services-

Marine Services, Provision of Facilities, Marine Services, Provision of Facilities, Maintenance ServicesMaintenance Services

5.1.25.1.2 Definition expanded (as Oil Industry Definition expanded (as Oil Industry evolved) to include Engineering, evolved) to include Engineering, Fabrication, Drilling, Work - Over and Fabrication, Drilling, Work - Over and other activities.other activities.

5. 5. Financing Oil & Gas ServicesFinancing Oil & Gas Services5.15.1 What Are Oil Field Services?What Are Oil Field Services?5.1.15.1.1 Restrictively seen as Logistic Services- Restrictively seen as Logistic Services-

Marine Services, Provision of Facilities, Marine Services, Provision of Facilities, Maintenance ServicesMaintenance Services

5.1.25.1.2 Definition expanded (as Oil Industry Definition expanded (as Oil Industry evolved) to include Engineering, evolved) to include Engineering, Fabrication, Drilling, Work - Over and Fabrication, Drilling, Work - Over and other activities.other activities.


Oil Field Services Market has enlarged as a result Oil Field Services Market has enlarged as a result of:of: Out-sourcing of most activities by ProducersOut-sourcing of most activities by Producers Increasing importance of off - Shore Increasing importance of off - Shore

ActivitiesActivities

7.1.37.1.3 Accordingly Typical Project is executed Accordingly Typical Project is executed with variety of contracts involving Services with variety of contracts involving Services and Supplies (See Fig. 1)and Supplies (See Fig. 1)

Oil Field Services Market has enlarged as a result Oil Field Services Market has enlarged as a result of:of: Out-sourcing of most activities by ProducersOut-sourcing of most activities by Producers Increasing importance of off - Shore Increasing importance of off - Shore

ActivitiesActivities

7.1.37.1.3 Accordingly Typical Project is executed Accordingly Typical Project is executed with variety of contracts involving Services with variety of contracts involving Services and Supplies (See Fig. 1)and Supplies (See Fig. 1)


FIGURE 1FIGURE 1

OIL FIELD DEVELOPMENT PROJECT SHOWING OIL FIELD DEVELOPMENT PROJECT SHOWING

TYPICAL SERVICE CONTRACTS INVOLVEDTYPICAL SERVICE CONTRACTS INVOLVED

ConstructionConstructionContractContract

ProjectProject

Spares AndSpares AndMaterialsMaterials

Supply ContractSupply Contract

O&MO&MContractContract

ServicesServicesOwnership interestOwnership interestService Contracts awarded through JV OperatorService Contracts awarded through JV Operator

Project Project Owners Owners


5.25.2 Typical Service Contracts are:Typical Service Contracts are:a)a) Those signed between Oil Producers (Oil Those signed between Oil Producers (Oil

Majors / Minors) and Major oil field services Majors / Minors) and Major oil field services companies, for example;companies, for example;

SchlumbergerSchlumberger HalliburtonHalliburton Baker Hughes, etceteraBaker Hughes, etcetera

b)b) Contracts between Major Oil Producers and Contracts between Major Oil Producers and Minor Oil Service CompaniesMinor Oil Service Companies

c)c) Sub contracts between major service Sub contracts between major service providers and minor Oil Service Providers.providers and minor Oil Service Providers.


5.2.15.2.1 In Africa, most of the services In Africa, most of the services shown in “Figure I” are provided by shown in “Figure I” are provided by Foreign Companies.Foreign Companies.

Domestic Supply Chains can therefore Domestic Supply Chains can therefore be formed to provide those services, i.e. be formed to provide those services, i.e. by enlarging the role of 5.2b&c in O&G by enlarging the role of 5.2b&c in O&G activities thereby improving Local activities thereby improving Local Content in the Oil Service business.Content in the Oil Service business.

5.2.15.2.1 In Africa, most of the services In Africa, most of the services shown in “Figure I” are provided by shown in “Figure I” are provided by Foreign Companies.Foreign Companies.

Domestic Supply Chains can therefore Domestic Supply Chains can therefore be formed to provide those services, i.e. be formed to provide those services, i.e. by enlarging the role of 5.2b&c in O&G by enlarging the role of 5.2b&c in O&G activities thereby improving Local activities thereby improving Local Content in the Oil Service business.Content in the Oil Service business.


5.35.3 Promotion of Local Content in Oil Field Promotion of Local Content in Oil Field Services Business is becoming a priority Services Business is becoming a priority in some African Countries, such as:in some African Countries, such as:• Nigeria where target is up to 45% Local Nigeria where target is up to 45% Local

Content by 2007.Content by 2007.• Angola where goal appears to be 10%Angola where goal appears to be 10%• Egypt where Egyptian Drilling Company (JV Egypt where Egyptian Drilling Company (JV

between EGPC and Maersk) does most drilling between EGPC and Maersk) does most drilling workwork

5.35.3 Promotion of Local Content in Oil Field Promotion of Local Content in Oil Field Services Business is becoming a priority Services Business is becoming a priority in some African Countries, such as:in some African Countries, such as:• Nigeria where target is up to 45% Local Nigeria where target is up to 45% Local

Content by 2007.Content by 2007.• Angola where goal appears to be 10%Angola where goal appears to be 10%• Egypt where Egyptian Drilling Company (JV Egypt where Egyptian Drilling Company (JV

between EGPC and Maersk) does most drilling between EGPC and Maersk) does most drilling workwork


5.45.4 Goal is to capture huge amounts of money paid Goal is to capture huge amounts of money paid to Service Providers and integrate the Oil Sector to Service Providers and integrate the Oil Sector with the Overall Economy through creating with the Overall Economy through creating Industry Clusters with strong Local Content.Industry Clusters with strong Local Content.

5.55.5 Financing is a major constraint in promoting Financing is a major constraint in promoting domestic Supply Chains in the Oil and Gas (O&G) domestic Supply Chains in the Oil and Gas (O&G) sector because of the characteristics of sector because of the characteristics of indigenous Oil Service Companies (OSC) listed indigenous Oil Service Companies (OSC) listed below:below:

5.45.4 Goal is to capture huge amounts of money paid Goal is to capture huge amounts of money paid to Service Providers and integrate the Oil Sector to Service Providers and integrate the Oil Sector with the Overall Economy through creating with the Overall Economy through creating Industry Clusters with strong Local Content.Industry Clusters with strong Local Content.

5.55.5 Financing is a major constraint in promoting Financing is a major constraint in promoting domestic Supply Chains in the Oil and Gas (O&G) domestic Supply Chains in the Oil and Gas (O&G) sector because of the characteristics of sector because of the characteristics of indigenous Oil Service Companies (OSC) listed indigenous Oil Service Companies (OSC) listed below:below:


5.65.6 The Critical Issues in Financing Indigenous The Critical Issues in Financing Indigenous Companies Revolve Around How To Deal With:Companies Revolve Around How To Deal With:

a)a) Their Low capitalization (Usually <USD1 Their Low capitalization (Usually <USD1 million)million)

b)b) Limited experienceLimited experiencec)c) No borrowing track record and therefore no No borrowing track record and therefore no

credible banking relationshipscredible banking relationshipsd)d) Their Highly specialized assets with limited Their Highly specialized assets with limited

secondary market.secondary market.e)e) Poor Corporate Governance Arrangements.Poor Corporate Governance Arrangements.

The above factors mean that pure corporate The above factors mean that pure corporate Finance will be difficultFinance will be difficult

Resort to local bank financing is constrained by Resort to local bank financing is constrained by lack of medium term funding in many marketslack of medium term funding in many markets

5.65.6 The Critical Issues in Financing Indigenous The Critical Issues in Financing Indigenous Companies Revolve Around How To Deal With:Companies Revolve Around How To Deal With:

a)a) Their Low capitalization (Usually <USD1 Their Low capitalization (Usually <USD1 million)million)

b)b) Limited experienceLimited experiencec)c) No borrowing track record and therefore no No borrowing track record and therefore no

credible banking relationshipscredible banking relationshipsd)d) Their Highly specialized assets with limited Their Highly specialized assets with limited

secondary market.secondary market.e)e) Poor Corporate Governance Arrangements.Poor Corporate Governance Arrangements.

The above factors mean that pure corporate The above factors mean that pure corporate Finance will be difficultFinance will be difficult

Resort to local bank financing is constrained by Resort to local bank financing is constrained by lack of medium term funding in many marketslack of medium term funding in many markets


6.6. ROLE OF STRUCTURED FINANCE:ROLE OF STRUCTURED FINANCE:6.16.1 Structured Finance is a technique of Structured Finance is a technique of

providing financing in difficult providing financing in difficult environments. It involves transferring risks environments. It involves transferring risks from parties less able to bear those risks to from parties less able to bear those risks to those considered more capable in a manner those considered more capable in a manner that permits automatic reimbursement of that permits automatic reimbursement of advances. It essentially makes deals self-advances. It essentially makes deals self-liquidating thereby reducing the risk of liquidating thereby reducing the risk of cumulative exposure to a client.cumulative exposure to a client.

6.6. ROLE OF STRUCTURED FINANCE:ROLE OF STRUCTURED FINANCE:6.16.1 Structured Finance is a technique of Structured Finance is a technique of

providing financing in difficult providing financing in difficult environments. It involves transferring risks environments. It involves transferring risks from parties less able to bear those risks to from parties less able to bear those risks to those considered more capable in a manner those considered more capable in a manner that permits automatic reimbursement of that permits automatic reimbursement of advances. It essentially makes deals self-advances. It essentially makes deals self-liquidating thereby reducing the risk of liquidating thereby reducing the risk of cumulative exposure to a client.cumulative exposure to a client.


6.26.2The Role of Structured Finance is The Role of Structured Finance is to mitigate risks by decomposing to mitigate risks by decomposing and transferring them from and transferring them from weaker parties to stronger weaker parties to stronger parties.parties.

6.26.2The Role of Structured Finance is The Role of Structured Finance is to mitigate risks by decomposing to mitigate risks by decomposing and transferring them from and transferring them from weaker parties to stronger weaker parties to stronger parties.parties.

6.36.3 An Innovative Structured Finance Transaction GASON in Support of An Innovative Structured Finance Transaction GASON in Support of Indigenous Oil Field Service Coys (OSCs) in Nigeria was recently arranged Indigenous Oil Field Service Coys (OSCs) in Nigeria was recently arranged in Nigeria (Figure 2).in Nigeria (Figure 2).


Credit Enhancement*Credit Enhancement*(Lloyds /AFREXIM)(Lloyds /AFREXIM)

FIGURE 2FIGURE 2

GUARANTEED AFREXIMBANK-BACKED GUARANTEED AFREXIMBANK-BACKED

SECURITIZED OIL SERVICE NOTES (GASON)SECURITIZED OIL SERVICE NOTES (GASON)

LENDERS (INTERNATIONAL BANKS)LENDERS (INTERNATIONAL BANKS)

OIL SERVICE COs.OIL SERVICE COs.

OIL MAJORSOIL MAJORS(SUBSIDIARIES)(SUBSIDIARIES)

ESCROW A/CESCROW A/C

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QUALIFIED LOCAL BANKSQUALIFIED LOCAL BANKS(BORROWERS)(BORROWERS)

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** Letter of Comfort** Letter of Comfort*** Certificate of Work Done or Accepted Invoices*** Certificate of Work Done or Accepted Invoices


6.3.1 Deal Information6.3.1 Deal InformationArrangers:Arrangers: Afreximbank, Bank of Tokyo-Mitsubishi and Afreximbank, Bank of Tokyo-Mitsubishi and

Standard Chartered BankStandard Chartered BankAgent:Agent: Standard Chartered BankStandard Chartered BankLocal Arrangers:Local Arrangers: First Inland Bank and Calag CapitalFirst Inland Bank and Calag CapitalLender of Record:Lender of Record: AfreximbankAfreximbankDeal Size:Deal Size: USD75 millionUSD75 millionFirst Loss Guarantor:First Loss Guarantor: AfreximbankAfreximbankSecond Loss Guarantor:Second Loss Guarantor: An International An International

Investment-grade rated InsurerInvestment-grade rated InsurerLenders’ Engineers:Lenders’ Engineers: SNC LavallinSNC LavallinLocal Guarantors:Local Guarantors: Nexim Bank, First Inland Bank, Nexim Bank, First Inland Bank,

Intercontinental Bank, Fidelity Bank, Intercontinental Bank, Fidelity Bank, Oceanic Bank, Sterling Bank.Oceanic Bank, Sterling Bank.

Final Maturity:Final Maturity: 3 years, with a 2 year Extension Option3 years, with a 2 year Extension Option


6.3.26.3.2 Key Advantages of DealKey Advantages of Deal Lenders benefit from Afreximbank’s preferred Lenders benefit from Afreximbank’s preferred

Creditor Status.Creditor Status. Lenders benefit from local knowledge of Lenders benefit from local knowledge of

domestic originator banks.domestic originator banks. Lenders benefit from a second way out Lenders benefit from a second way out

comprising of a diversified pool of local banks comprising of a diversified pool of local banks with strong oil service financing capabilities.with strong oil service financing capabilities.


Local banks are able to increase oil Local banks are able to increase oil service lending by freeing their capital.service lending by freeing their capital.

Contractors benefit from cheaper and Contractors benefit from cheaper and matching currency funding.matching currency funding.

Country benefits from greater Country benefits from greater indigenous participation in the sector indigenous participation in the sector by operators and local banks.by operators and local banks.


6.3.36.3.3 Lessons Learnt:Lessons Learnt: Lengthy process – Deal took 2 years to Lengthy process – Deal took 2 years to

Closure due to :Closure due to :

Multiplicity of parties.Multiplicity of parties. Limited experience of Oil Service Limited experience of Oil Service

Coys (OSCs) in accessing such Coys (OSCs) in accessing such funding which delayed CP funding which delayed CP completion.completion.


7. 7. Local Content Support Fund:Local Content Support Fund:7.17.1 A Major Oil Producing Country Intent on Aggressive Local A Major Oil Producing Country Intent on Aggressive Local

Content Targets Approached the Arranger of GASON to put Content Targets Approached the Arranger of GASON to put

a Deal together for Local Content Support.a Deal together for Local Content Support.

7.27.2 Their Requirements: Their Requirements: A Fund of USD500m – USD1 billion.A Fund of USD500m – USD1 billion. Very Competitive PricingVery Competitive Pricing A Fund Accessible by Indigenous Service Providers that A Fund Accessible by Indigenous Service Providers that

would otherwise not be able to access the Eurocredit would otherwise not be able to access the Eurocredit

Market.Market. Speed – 4 months to Closure.Speed – 4 months to Closure.


7.3 Our Solution:7.3 Our Solution:7.3 Our Solution:7.3 Our Solution:

Arrangement of Arrangement of USD350m 3-year USD350m 3-year Syndicated Oil Syndicated Oil

Service Contract Service Contract Pre-financing Pre-financing

Facility as a BridgeFacility as a Bridge

Arrangement of Arrangement of USD350m 3-year USD350m 3-year Syndicated Oil Syndicated Oil

Service Contract Service Contract Pre-financing Pre-financing

Facility as a BridgeFacility as a Bridge

Arranging aArranging aUSD1 billion USD1 billion

Medium Term Medium Term Note Note

ProgrammeProgramme

Arranging aArranging aUSD1 billion USD1 billion

Medium Term Medium Term Note Note

ProgrammeProgramme


7.4 STRUCTURE OF THE USD350 MILLION BRIDGING 7.4 STRUCTURE OF THE USD350 MILLION BRIDGING

LOANLOAN

AFREXIMBANK AFREXIMBANK (Lender of Record/ (Lender of Record/ Security TrusteeSecurity Trustee

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7.57.5 Deal UnderpinningsDeal Underpinnings Strong Promoter Support – A First Loss Guarantee Strong Promoter Support – A First Loss Guarantee

Fund of up to USD100 million contributed by the JVs Fund of up to USD100 million contributed by the JVs operating in the Country ARRANGED by the National operating in the Country ARRANGED by the National Oil Company (NOC).Oil Company (NOC).

Sound Structure that Mitigated Performance Risk Sound Structure that Mitigated Performance Risk through:through:

A pre-qualification system conducted by a first class A pre-qualification system conducted by a first class Oil Engineering firm and backed by the National Oil Oil Engineering firm and backed by the National Oil CompanyCompany

Panel of internationally Reputable Oil Service Panel of internationally Reputable Oil Service Companies acting as Contingent Oil Service providers Companies acting as Contingent Oil Service providers to step in upon Disqualification of any OSC.to step in upon Disqualification of any OSC.


Strong Support of Oil Majors Strong Support of Oil Majors

operating in the Country.operating in the Country. A very ROBUST and CLEAR Local A very ROBUST and CLEAR Local

Content Policy in place in the Content Policy in place in the

Country.Country.


7.6 THE PROPOSED USD1 BILLION MEDIUM TERM NOTE7.6 THE PROPOSED USD1 BILLION MEDIUM TERM NOTE7.6 THE PROPOSED USD1 BILLION MEDIUM TERM NOTE7.6 THE PROPOSED USD1 BILLION MEDIUM TERM NOTE

INV

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INV

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Medium Medium Term Term

Notes/ Notes/ Bond Bond

DealersDealers

Issuance Issuance Fully Fully

UnderwritteUnderwritten by n by

Investment-Investment-grade rated grade rated

BankBank

Liquidity Liquidity ProvidersProviders

Issuance of Multi-Currency NotesIssuance of Multi-Currency Notes

Multi-Multi-Seller Seller

Medium Medium Term Term Note/ Note/ Bond Bond

Issuance Issuance ProgramProgram

Program Program Manager Manager (Interna-(Interna-

tional tional Financial Financial

InstitutionInstitution))

TrusteeTrustee

Contingent Contingent Oil Service Oil Service CompaniesCompanies

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Repayment: Principal & InterestRepayment: Principal & Interest

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Funding Agreemen

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Funding Agreemen

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ContractsContracts

Issuance ProceedsIssuance Proceeds

Contingent Services

Agreement

Contingent Services

Agreement

Issue

Proceeds

Issue

Proceeds

Trustee Agreemen

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Trustee Agreemen

tAssignment of payments from Oil Majors to Designated Trustee Account

Assignment of payments from Oil Majors to Designated Trustee Account

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7.7 Proposed Program Structure7.7 Proposed Program Structure

Multi-Seller Medium Term Note ProgramMulti-Seller Medium Term Note Program** To be arranged as an open ended revolving debt To be arranged as an open ended revolving debt

funding scheme structured as a multi seller funding scheme structured as a multi seller medium term note (MTN) program collaterized by medium term note (MTN) program collaterized by the receivables of the issuer from joint Venture the receivables of the issuer from joint Venture Partners of NOC (Shell, Mobil, Chevron, Agip). Partners of NOC (Shell, Mobil, Chevron, Agip). The notes will be issued by the Special Purpose The notes will be issued by the Special Purpose Vehicle and can be in a multiple of tenors and Vehicle and can be in a multiple of tenors and currencies but mainly expected to be in US$.currencies but mainly expected to be in US$.


** The MTN is expected to attract Investment-grade The MTN is expected to attract Investment-grade rating as it is expected to be underwritten by an rating as it is expected to be underwritten by an Investment grade-rated bank. Performance Risk to be Investment grade-rated bank. Performance Risk to be mitigated by introducing a Joint Qualification Systems mitigated by introducing a Joint Qualification Systems (JQs) and Contingent Oil Service Companies (JQs) and Contingent Oil Service Companies (Investment grade-rated international Oil Service (Investment grade-rated international Oil Service Coys).Coys).

** Repayment would be through A LEGAL ASSIGNMENT of Repayment would be through A LEGAL ASSIGNMENT of receivables by the companies. All cash flows are receivables by the companies. All cash flows are expected to be captured offshore in high investment expected to be captured offshore in high investment grade internationally rated countries.grade internationally rated countries.

** The receivables will be managed by an independent The receivables will be managed by an independent trustee, acting as Collection and Paying Agent.trustee, acting as Collection and Paying Agent.


7.8 Transaction Flow:7.8 Transaction Flow:1.1. Oil majors tender for contracts.Oil majors tender for contracts.2.2. Local content companies bid and a winner is Local content companies bid and a winner is

nominated. The winner will seek to source funding nominated. The winner will seek to source funding from the Fund.from the Fund.

3.3. The Fund will enter into an open-ended funding The Fund will enter into an open-ended funding agreement with the funding program manager who will agreement with the funding program manager who will in turn set up a Medium Term Note Issuance Program in turn set up a Medium Term Note Issuance Program to facilitate an evergreen debt funding program.to facilitate an evergreen debt funding program.

4.4. The debt funding program will also enter into a trustee The debt funding program will also enter into a trustee agreement with an international trustee; to provide agreement with an international trustee; to provide paying and collection services to the program.paying and collection services to the program.


5.5. The SPV set up for the program will also enter into a The SPV set up for the program will also enter into a Liquidity Back-Stop Facility Agreement, to provide Liquidity Back-Stop Facility Agreement, to provide liquidity to investors to protect against cash flow liquidity to investors to protect against cash flow timing mismatches. Dealer agreement will also be timing mismatches. Dealer agreement will also be entered into to provide trading and underwriting to the entered into to provide trading and underwriting to the notes in issuance.notes in issuance.

6.6. On the strength of the credit quality and legal structure On the strength of the credit quality and legal structure of the program, investment grade notes / bonds of of the program, investment grade notes / bonds of varying maturities will be issued to target investors.varying maturities will be issued to target investors.

7.7. Proceeds of notes / bonds issued will be used to fund Proceeds of notes / bonds issued will be used to fund eligible Local content companies for working capital eligible Local content companies for working capital and contract completion purposes.and contract completion purposes.


8.8. Contract Receivables will through the Contract Receivables will through the assignment be used to repay principal & assignment be used to repay principal & interest on the notes.interest on the notes.

9.9. Excess cash flows that accrue to the Excess cash flows that accrue to the Trustee / Paying Agent after paying the Trustee / Paying Agent after paying the note obligations will be paid to the note obligations will be paid to the individual local oil and gas companies.individual local oil and gas companies.


Benefits to Potential InvestorsBenefits to Potential Investors1.1. Repayments will be based on a Legal Assignment of Repayments will be based on a Legal Assignment of

receivables payable to the Trustee Offshore.receivables payable to the Trustee Offshore.2.2. Issuance to be underwritten by an Investment-grade Issuance to be underwritten by an Investment-grade

rated International financial institution ensuring rated International financial institution ensuring investment grade rating for the Notes.investment grade rating for the Notes.

3.3. Back Stop liquidity facility to ensure cashflow timing Back Stop liquidity facility to ensure cashflow timing mismatches are covered.mismatches are covered.

4.4. Available liquidity in notes via designated dealersAvailable liquidity in notes via designated dealers5.5. Performance Risk Mitigated.Performance Risk Mitigated.6.6. Strong Programme Sponsor with a track record of Strong Programme Sponsor with a track record of

successfully accessing the international financial successfully accessing the international financial market.market.


THANK YOU THANK YOU FOR LISTENINGFOR LISTENING

THANK YOU THANK YOU FOR LISTENINGFOR LISTENING

dr. b.o. oramah innovative solutions in financing local entrepreneurs: structured oil service deals...

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