services and equipment for the russian oil & gas industry rpi international conference december...
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Services and Equipment for the Russian Oil & Gas Industry
RPI International Conference
December 2003
Moscow, Russia
Services and Equipment for the Russian Oil and Gas
Industry
Services and Equipment for the Russian Oil & Gas Industry
Contents:
• Development of Financing for the Russian Oil Sector• Role of Multilateral Financial Institutions in Financing
Russian Oil & Gas (O&G) Services• Future Trends in Financing Russian O&G Industry
2
Services and Equipment for the Russian Oil & Gas Industry
Russian Oil Production
0
1
2
3
4
5
6
7
8
mill
ion
b/d
1992 1996 2002
Source: Oxford Analytica, 10/8/2003
Russian Oil Production
Services and Equipment for the Russian Oil & Gas Industry
Role of the Oil Sector in Russian economy
7% of GDP
12% of industrial output
24% of fiscal revenue
28% of export revenue
Source: Oxford Analytica, 2002 figures
Services and Equipment for the Russian Oil & Gas Industry
Major industry drivers
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1990 1995 2000 2003
Initial asset distribution (early to mid 1990s)
Follow-up sector consolidation (mid- to late 1990s)
Improving world oil market fundamentals (late 1990s – early 00s) strong increase in Russian oil production
Availability of assets / reserves
Developing Russian capital markets and overall macro stability restructuring of companies, increase in transparency, desire to enter international capital markets
Services and Equipment for the Russian Oil & Gas Industry
Sources of Financing
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1990 1995 2000 2003
Initial asset distribution (early to mid 1990s)
Follow-up sector consolidation (mid- to late 1990s)
Improving world oil market fundamentals (late 1990s – early 00s) strong increase in Russian oil production
Availability of assets / reserves
Developing Russian capital markets and overall macro stability restructuring of companies, increase in transparency, desire to enter international capital markets
Equity / Cash Flow
Bank Loans
Cash Flow and Export Receivables-Backed Loans
Services and Equipment for the Russian Oil & Gas Industry
Early External Financing of Russian Oil Companies • Export receivables-backed loans
– The structure survived the 1998 test
– The product is now commoditized
• 30-40 banks active in the market
• Market size estimated at $20-25 bn
– Tenors are increasing (5 years + - recent Lukoil deal)
– Margins are tightening (150-175 bp over Libor – recent Yukos deal)
– Increase in facility sizes (up to $1bn)
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Services and Equipment for the Russian Oil & Gas Industry
Export Receivables Backed Loans – Trend 2000-2003
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Tenors (years)
Pricing (LIBOR+)
1 2 3 4 5 6 7
100bp
200bp
300bp
400bp
LUKoil ‘03
Yukos ‘03
TNK ‘03
Most Majors‘00-’02
Services and Equipment for the Russian Oil & Gas Industry
Producers vs. Services Providers
• Financing to-date focused mainly on producers, not O&G services providers
• Experience to date:– International O&G services providers often bring their own
financing to Russia
– Russian O&G services providers often lack adequate long-term financing in Russia
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Services and Equipment for the Russian Oil & Gas Industry
Contents:
• Development of Financing for the Russian Oil Sector• Role of Multilateral Financial Institutions in
Financing Russian Oil & Gas (O&G) Services• Future Trends in Financing Russian O&G Industry
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Services and Equipment for the Russian Oil & Gas Industry
O&G Services providers
• In emerging markets, often driven by:– Government’s commitment to increase local content in the
O&G sector
– O&G companies’ drive for efficiency and use of Western O&G technologies
• Local players often face limited range of financing options, compared to international players
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Services and Equipment for the Russian Oil & Gas Industry
IFI’s Role - Complementing the market
• Complementing commercial funding– Extending tenors– Leading structures– Guarantees
• Project Finance– ECAs – source-based funding– International Financial Institutions (IFIs) – mitigation of
country risk
Services and Equipment for the Russian Oil & Gas Industry
IFC’s way to address the market gap:
• Contractor Revolving Credit Facility– Basis for the facility: the relationship between a
contractor and a large O&G company through a medium term contracts of about 2-3 years with a portion of foreign exchange payments
– Use of funds: to fund working capital requirements and capital expenditures for specific contracts
– Facility size: $15M and above
Services and Equipment for the Russian Oil & Gas Industry
Contractor Revolving Credit Facility – cont.
– Modus operandi: the facility is managed by a local bank, familiar with IFC’s operating procedures
– Criteria for contract approval: eligible contracts approved on a case-by-case basis, through a desk review. Counterparties often pre-agreed.
Services and Equipment for the Russian Oil & Gas Industry
Contractor Revolving Credit Facility – cont.
– Funding: per contract, to a maximum percentage (e.g., 60%) of the total expected payment
• Maximum percentage determined by the Contractor’s general level of liquidity and indebtedness
• The facility is linked to the dollar component of the contract proceeds
– Payments: made directly to a secured accounts under the facility
– Security arrangements: depending on project and type of contract
Services and Equipment for the Russian Oil & Gas Industry
Contents:
• Development of Financing for the Russian Oil Sector• Role of Multilateral Financial Institutions in Financing
Russian Oil & Gas (O&G) Services• Future Trends in Financing Russian O&G Industry
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Services and Equipment for the Russian Oil & Gas Industry
Future Trends in Financing Russian O&G Industry
I. Large Investment Projects
II. Further Sector Consolidation
III. Inflow of Foreign Capital and Technology
Services and Equipment for the Russian Oil & Gas Industry
I. Large Investment Projects
• Why? Why Russia? Why now?– Need to replenish reserves
• Global acceleration of decline rates (China, UK/ North Sea)
• Availability of reserves in Russia
– Need to export oil• Need to further develop transportation infrastructure
Services and Equipment for the Russian Oil & Gas Industry
I. Large Investment Projects – cont.
– Transportation infrastructure• Need to develop stronger pipeline infrastructure, to
bypass bottlenecks in the existing export pipeline system
• Railcars and railway infrastructure – need for cars (quantity and quality), and effective leasing structures
• Shipping: tankers / icebreakers for offshore fields
About 70% of Russia’s oil is extracted in Western Siberia and needs to be
transported to export terminals on the Baltic and Black Seas
Services and Equipment for the Russian Oil & Gas Industry
I. Large Investment Projects – cont.
– Revamp / debottlenecking of existing facilities and new facilities
• Upstream assets
• Refineries and other downstream assetsO&G
Services
Services and Equipment for the Russian Oil & Gas Industry
II. Further Sector Consolidation
• Rationalization of existing players
• Drive for efficiency
Services and Equipment for the Russian Oil & Gas Industry
III. Inflow of Foreign Capital and Technology
• Potential M&A of the existing players in Russia
• New fields – Western and Eastern Siberia, offshore fields in the North
• Pipelines investments
• Oil Services
• New financing structures (securitization, etc.)
O&G Services
Services and Equipment for the Russian Oil & Gas Industry
IFC in Russian Oil Sector
• IFC’s fundamental role is to promote economic development by encouraging private investment, both foreign and domestic, in developing member countries.
• IFC participates in private ventures that benefit the host country economy, promote high environmental standards, and provide strong demonstration effect.
International Bank for Reconstruction and
Development (IBRD)Established in 1945
International Finance Corporation (IFC)Established in 1956
International Development Association (IDA)
Established in 1960
Multilateral Investment Guarantee Agency (MIGA)
Established in 1988
Services and Equipment for the Russian Oil & Gas Industry
Aminex
Loan $20.5 million
Increase productionof the Kirtayel Oil Field
in Komi Republic
Signed: November 1996
Russia
Bitech-Silur
Loan $17.5 millionEquity $7.5 million
Establishment of a joint-stockcompany to develop two oil
fields in Timan Pechora Basin
Signed: June 1999
Russia
Vasyugan
Loan $11.5 million
Expansion of hydrocarbonproduction from existing oiland gas reservoirs in Tomsk
Signed: March 1995
Russia
Polar Lights
Loan $60 million
Development of the Ardalinoil field and related facilities
in Northern Russia
Signed: September 1993
Russia
IFC in Russian Oil and Gas Sector
Lukoil Overseas
Loan $50 millionSyndicated loan $75 million
C loan $25 million
Further development of Karachaganak
oil field
Signed: October 2002
Kazakhstan
Services and Equipment for the Russian Oil & Gas Industry
IFC Has Delivered a Wide Range of Services to Businesses in Russia and the CEU region
• Financed over 40 projects in various sectors– Provided loans totaling $960 million – Invested $152 million in equity– Over $160 million mobilized from loan syndication with
commercial banks
• Provided technical assistance– Covered mining, agribusiness, financial, and forestry sectors– Worked directly with SMEs and large companies
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Services and Equipment for the Russian Oil & Gas Industry
IFC Committed $500 million in Russia in FY2003
0
100
200
300
400
500
millions
of
US$
IFC totalcommitment
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Services and Equipment for the Russian Oil & Gas Industry
Thank you!
Alzbeta KleinPrincipal Investment Officer
(W) 7-095-411-7555 ext. 2053(M) 7-095-991-0153E-mail: [email protected]
For further discussion, please contact:
International Finance Corporation36 Bolshaya Molchanovka, Building 1121069 Moscow, Russia
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