Financing of independent oil companies

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Financing of independent oil companies
ABZ Petroleum Investments Moscow March 2005
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Commitment to the industry

• In serving the oil and gas sector, ABZ PETROLEUM
  INVESTMENTS brings to bear the strengths,
  traditions and standards of excellence of its
  predecessor institutions.
• ABZ PETROLEUM INVESTMENTS professionals have
  substantial industry experience and professional
  degrees in pertinent fields of study, such as
  geology, drilling, reservoir management, finance,
  economics and others.
• ABZ PETROLEUM INVESTMENTS primary focus is on
  delivering creative solutions to clients, in
  order to address their industry challenges and
  financing opportunities.
• Our key strengths
• Provide our clients with the highest quality
  advice possible
• In-depth perception of Russia and CIS oil gas
  industry.
• Wide contact base in business and political
  circles in Russia and FSU
• Established access to local and oil gas
  companies with attractive licences (target
  assets)
• Bring an unwavering level of integrity and
  intellectual honesty to each transaction

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Independent oil companies in Russia

• Following collapse of the Soviet Union, the
  Russian government issued licenses on already
  discovered fields which had been explored, but
  never fully developed
• Small independent oils account for 7 of oil
  production in Russia (175 mln. barrels per year).
  
• Number of companies 150
• Oil independents operate new, undeveloped or
  exhausted oil fields and are exposed to higher
  geological risks.
• Independents put to operation 78 of new oil
  fields out of 248 for the last 5 years.
• Ratio on CAPEX to production volume is much
  higher that Russian majors (5,5)

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Independent oil companies

• Main source of revenues export of crude oil.
  Small oil companies are forced to sell crude
  petroleum domestically at low prices.
• Difficult to acquire long-term debt at affordable
  borrowing cost (low export proceeds, low credit
  ratings, insufficient securitization)
• Independent companies are privately held, which
  limit raising capital through the stock market.
• Internationally recognized audit of reserves is
  uncommon
• Limited access to advanced technologies
• Survivability is higher due to a very simple and
  straightforward structure. Decisions are made and
  executed faster within small companies.

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A typical Russian independent

• Reserves (C1) up to 140 mln. barrels
• Production up to 2 500 bpd
• Number of producing wells up to 15
• Undeveloped infrastructure (winter road, local
  pipeline etc.)
• Nontransparent ownership structure
• International audit of reserves is rare
• International audit of financial statements is
  rare

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Independents risks

• Oil price volatility
• Higher geological risk
• Domestic oil prices / access to refineries
• Compliances of license agreements with Ministry
  of Natural Resources
• Pressure of Local majors
• Tax risks (tax burden is higher, weak lobbying
  power)
• Access to pipelines
• Limited corporate governance non-transparency
• Influence of local administration

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Candidates for capital

• Key success factors of independent company in
  getting investments
• Management team (with financial and technical
  expertise, successful track records)
• Focused business plan, financial strength and
  specific growth opportunities.
• State of the art EP technologies and a solid
  technical evaluation
• Well-organized presentation with explanation of
  business model
• Establishing relationship with investors

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Case 1 Oil company at Samara region

• Location Samara region
• Reserves ABC1 21,17 mln. Brl (2,9 mln. tn)
  audited by Miller Lents
• Production 1220 bpd (61 th. tn. per year)
• Level of oil export is 59
• Exploitation wells - 46
• 5 oil developed fields
• Oil crude proceeds (as of 31/12/03) US 9 mln.
• Fixed assets (as of 1/10/04) US 7,8 mln.
• The company is managed by professional with more
  than 18 years of oil industry
• The company is looking for financing for
  development of recently acquired field and
  acquisition of 2 more oil fields.

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Case 2 Oil and gas condensate company

• Location Nizhnevartovsk, Kirov and Volgograd
  regions
• Recovered reserves
• Oil (ABC1) 36,5 mln. Brl (5 mln. tn)
• Gas (C1)4 bcm
• Production 320 bpd (16 th. tn. per year)
• Exploitation wells - 12
• 2 oil fields, 1 gascondensate field
• The company is managed by professional with more
  than 10 years of oil industry
• The company is looking for financing for
  development of oil and gascondensate fields, and
  acquisition of the neighborhood fields.

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Case 3 Oil company at Orenburg region

• Location Orenburg region
• Reserves ABC1 40 mln. Brl (5,6 mln. tn)
• Production at 2004 2 400 bpd (120 th. tn. per
  year)
• Maximum level of oil production in 2008 is 6 400
  bpd (320 th. tn. per year)
• Level of oil export is 99
• 1 developed oil field
• The company is managed by professional with more
  than 15 years of oil industry
• The company is looking for financing for
  development of the producing field.

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Debt finance facility

• Amount starts from US 10 mln.
• Cost of financing
• International banks look for margin 4-6 over
  LIBOR.
• Local banks provide loan at 9-12 fixed
• Trade finance also available from off-takers for
  5,5-8, with maturity of 6-12 months.
• Maturity 3-5 years
• Grace period
• Pledge - crude oil export proceeds, property
• Two contracts (purchase contract and loan
  agreement)

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Competitors
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Proposal for consulting contract

• Target to bring the deal and additional clients
  to Mitsubishi trading division
• Consultant assignments
• To introduce oil companies to Mitsubishi and
  facilitate effective negotiations
• To bring the information for decision making
• To evaluate several projects and focus on the
  most effective deal
• To provide expertise on geology, technology and
  finance
• To structure the deal
• Term 12 months
• Retainer
• Success fee

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Contacts

• ABZ Petroleum Investments
• Gleb Zamiatin, Executive Director
• Strastnoy Boulevard 4/3 bld. 3, office 29
• Moscow, Russia 125009
• Tel. [phone]
• Tel/Fax [phone]
• dcf_at_pobox.ru