Structured Finance and Hedging for Oil&Gas Producers in Africa
SG CIB Commodities Group2 June 2005
9TH AFRICA OIL & GAS, TRADE & FINANCE CONFERENCE
NOT AN OFFICIAL UNCTAD RECORD
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This presentation contains indicative terms for presentation and discussion purposes only and does not represent a commitment of Société Générale. The information set forth herein is believed to be reliable, but no representation is made as to its accuracy or its completeness. The information set forth herein is subject to change without notice.
Société Générale does not provide investment, trading, accounting, tax or legal advice. This information is made available to you based on our understanding that you have the knowledge and sophistication to appraise, and that you will, to the extent necessary, consult with your own advisors, to independently assess, the economic consequences, risks, terms, and conditions of the proposal and to independently determine the merits of the proposal.
Disclaimer
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Content
General Presentation
Case Study 1: One Shop – Two Products
Case Study 2: Indexed Loan Facility
Awards and Ranking
Contacts
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Content
General Presentation
Case Study 1: One Shop – Two Products
Case Study 2: Indexed Loan Facility
Awards and Ranking
Contacts
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Société Générale at a Glance
Key Figures :Total Assets : Euros 539 billion
Equity : Euros 18.6 billion
92,000 employees worldwide in 80 countries
Market capitalization : Euros 33.1 billion
Ratings : AA-, Aa2, AA- (S&P, Moody’s, Fitch)
3rd largest corporate and investment bank in the Euro Zone (Net Banking Income)
An Integrated Universal Bank
Established in 1864, Société Générale (“SG”) is a preeminent universal bank, with focus on three core areasRetail banking
Asset management and private banking
Corporate and investment banking
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Integrated Oil & Gas Approach
ProducerProducerTraderTrader
RefinerRefinerDistributorDistributor
ConsumerConsumerReserve Based Lending
Trade Finance
Equipment Finance
Project Finance
Structured Commodity Finance
Corporate Finance
OTC Trading
Exchange Traded Contracts
Physical Trading
Investment Products
Inventory Management
Fundamental & Technical Research
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International Oil&Gas Presence
Houston
Corporate Banking
Reserve based lending
Project finance
Investment Banking Services
Oil & Gas Derivatives futures
Los AngelesAsset Management
(TCW)
LondonProject Finance
Paris
Project FinanceCommodity FinanceCorporate Banking
Export Credits
Oil & Gas derivativesOil & Gas futures
(FIMAT)
M&AEquity Research
Acquisition FinanceEuro Capital Markets
Assets Management
MoscowM & A
Commodities Finance
BeijingCorporate Banking
AustraliaProject Finance
Corporate Banking
SingaporeCommodity FinanceCommodity Hedging
Hong-KongProject Finance
M & A
DubaiProject Finance
NY
Project finance
Oil & Gas Derivatives
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Content
General Presentation
Case Study 1: One Shop – Two Products
Case Study 2: Indexed Loan Facility
Awards and Ranking
Contacts
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Content
General Presentation
Case Study 1: One Shop – Two Products
Case Study 2: Indexed Loan Facility
Awards and Ranking
Contacts
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Case 1: One Shop - Two Products
Independent producer with a few assets located in a country considered as « high risk » for international rating agencies (« single B» range).
Strong corporate situationProved reserves in excess of 300Mbbl;
Experienced management;
Production in excess of 100,000 b/d;
Low upstream costs.
However, because of the underlying « country risk » perception of international creditors, the access to international debt finance remains limited to short-term export backed structures.
The company is cash rich but needs to be able for the coming years to:Lock-in a minimum value of cash flow, regardless of the price and
Dispose of available medium to long term credit lines,
In order to be in a position to consider attractive investment opportunities when they arise.
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Case 1: One Shop - Two Products
SG CIB’s response was in the form of a committed credit line, available forCash advances;
Counterparty risk under hedging transactions with the bank (medium term swaps).
The available committed amount is determined on the basis of a borrowing base, i.e. the projection of free cash flow of the company, to be reviewed on a regular basis.
The tenor of the commitment is up to 5 years.
Hedging transactions are available for a notional volume in excess of 2 mio bbl and usually include a sub-limit (the “Threshold”) in USD terms for a maximum marked to market value for which the bank is committed.
The company has the flexibility to fix the Threshold within a given range. In fixing the Threshold below the top of the range, it makes additional capacity available for cash advances.
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Case 1: One Shop - Two Products
The only requested security is the assignment of a contingent export contract.This contract provides for the export of a crude oil volume, which is sufficient to
repay the facility over a period of 18 months.
No delivery takes place under the contract unless the economic or political situation in the country of operations deteriorates significantly (“Trigger Events”).
Unless a Trigger Event occurs, the company is not obliged to allocate specified export sales to the repayment of the facility.
In other words, the facility remains unsecured, unless a Trigger Event occurs, upon which it turns into a pre-export financing scheme.
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Content
General Presentation
Case Study 1: One Shop – Two Products
Case Study 2: Indexed Loan Facility
Awards and Ranking
Contacts
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Content
General Presentation
Case Study 1: One Shop – Two Products
Case Study 2: Indexed Loan Facility
Awards and Ranking
Contacts
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Case 2: Indexed Loan Facility
Rationale behind the oil indexed Loan Facility To lower the facility burden when revenues of the user of the facility are shrinking
because of diminishing oil price (Oil producer case)
Indexation mechanism for producer is a positive relation between oil price evolution and debt payment
Positive pointsReassuring arguments for lenders possibly afraid of adverse market evolution
Logical mechanism in terms of financial communication
Initial loan coverage ratio is improved as cash flow volatility to oil prices is reduced thanks to indexation
Capped debt payment in case of favorable (up) oil prices
A Commodity producer wants to be in a position to reduce its financial expenses if the crude oil price decreases.
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Case 2: Indexed Loan Facility
SG CIB proposes an Indexed Loan Facility:Parameters of indexation mechanism are directly linked to characteristics of the
underlying loan
The borrower will repay facility depending on the evolution of the brent IPE
This amount can be reduced down to zero and is anyhow capped on the upside
The indexation can apply to both Principal and Interests.
The proposed structure involves the embedding of a crude oil derivative instrument within the bank loan.
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Case 2: Indexed Loan Facility
For example sake the following underlying loan facility is considered : Facility Amount: USD100,000,000
Grace Period: 3 months
Tenor: 4 years
Interest Rate: 6% pa.
Total Financial expenses (P+I): USD112,000,000.
Start date : jan 06
Indexation apply to 50% of the Facility Amount
Interest 100% indexed
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Case 2: Indexed Loan Facility
Mechanism of the indexation Underlying : Brent IPE
Quarterly : to match quarterly installments and interests payments
Levels of indexation If the quarterly average of Brent IPE is below 28$/b
Indexed part of nominal to be repaid : 0
Interests to be paid : 0
Total (I+P) : 50M USD
If the quarterly average of Brent IPE is from 28$/b to 38$/b,
Indexed part of nominal to be repaid : from 0 (28$/b) to 50 M USD (38$/b)
Interests to be paid : from 0 (28$/b) to 12 M USD (38$/b)
Total (I+P) : from 50 M USD (28$/b) to 112M USD (38$/b)
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Case 2: Indexed Loan Facility
Levels of indexation If the quarterly average of Brent IPE is from 38$/b to 53$/b,
Indexed part of nominal to be repaid : 50 M USD
Interests to be paid : 12 M USD (38$/b)
Total (I+P) : 112M USD
If the quarterly average of Brent IPE is from 53$/b to 58$/b,
Indexed part of nominal to be repaid : from 50 M USD (53$/b) to 75 MUSD (58$/b)
Interests to be paid : from 12 M USD (53$/b) to 18 M USD (58$/b)
Total (I+P) : from 112M USD (53$/b) to 143 MUSD (58$/b)
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Case 2: Indexed Loan Facility
40 000 000
60 000 000
80 000 000
100 000 000
120 000 000
140 000 000
160 000 000
25 28 31 34 37 40 43 46 49 52 55 58 $/b
USD
Indexed debt serviceLoan AmountUnindexed Total Debt service
50% Nominal non indexed
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Content
General Presentation
Case Study 1: One Shop – Two Products
Case Study 2: Indexed Loan Facility
Awards and Ranking
Contacts
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Content
General Presentation
Case Study 1: One Shop – Two Products
Case Study 2: Indexed Loan Facility
Awards and Ranking
Contacts
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Trading Awards
Energy/Commodity House of the Year - 2004Energy/Commodity House of the Year - 2003
Crude Oil House of the Year - 2004Oil Products House of the Year - 2003
N° 1 : Fuel Oil - Swap Singapore
N° 3 : Fuel Oil - Options
N° 3 : Gasoline - Options Europe
N° 1 : Gold - Forward/Averages/Swap to five years
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Financing Awards
Each year Trade Finance magazine ranks the international banks active in structured commodity finance.In 2003, 2004 and 2005 SGCIB was ranked number 1.
SGCIB was also elected: Best Energy & Commodity Finance (Global Finance magazine).
Best Trade Finance and Highly Commended Commodity Bank (Global Finance magazine).
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Content
General Presentation
Case Study 1: One Shop – Two Products
Case Study 2: Indexed Loan Facility
Awards and Ranking
Contacts
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Content
General Presentation
Case Study 1: One Shop – Two Products
Case Study 2: Indexed Loan Facility
Awards and Ranking
Contacts
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Web Site
Commodities Capital Market : Commodities Capital Market :
www.commodities.sgcib.comwww.commodities.sgcib.com
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Contacts
Christophe Roux, Managing Director, Structured Commodity Finance, Oil&GasTel: 33 1 5898 1601Mob: 33 6 0918 1562E-mail: [email protected]
Nathalie MorichonDirector, Energy Derivatives marketing, Oil&GasTel : + 33 1 42 13 44 07Mob : + 33 6 85 81 45 55 E-mail : [email protected]
Cédric ViviantVice President, Commodities and Trade Finance, Oil&GasTel : + 33 1 41 45 97 36E-mail : [email protected]