Prepare a report on financial markets for a team of non-financial managers in your firm. The report will contain summaries of the following financial markets topics.
·Provide a 1-page summary of “Types of financial markets”. Please include the four classifications provided in Chapter 3 of your textbook.
·Provide a 1-page summary of the “Stock Markets”. Please include information given in Chapter 3 of your textbook
·Provide a 1-page summary of “The Investment Banking Process” i.e., how will your firm sell stocks and bonds with the help of investment bankers. Please include information given in Chapter 3 of your textbook.
Determining a selling price for a firm
·Chevron is considering selling new shares of common stock in the primary market. If Chevron has projected earnings per share (EPS) of $8.25, at what approximate price will the new stockholders buy stock?
[Hint: You need to look at the P-E multiples for other similar companies in the O&G industry to determine a reasonable stock price].
Please provide P-E multiples data for other similar companies in the O&G industry, and show all calculations.
Current Event
·Provide a 2-page summary of financing products and reserve based funding in the oil and gas industry.
Source:How Banks use Reserves & Resources Reports in Debt based Project Finance
How Bank’s use Reserves & Resources Reports in Debt based Project Finance Prepared for the SPE Reserves & Resources Reporting Continuing Education Seminar 13th June 2016 Neil Fairnie, Standard Bank Group CE seminar; 13 June 2016 Reserves & Resources Reporting 1Contents Section Slide Introduction 1. Oil and Gas Lending Products 6 2. Reserve Based Lending 9 3. Determining the Borrowing Base 15 4. The Redetermination Process 27 5. Relevance of a Typical Reserves Report to the Banking Case 31 Questions ? SPE London/SPEE Europe – CE June 2016: How Bank’s use Reserves & Resources Reports in Debt based Project Finance Neil Fairnie, Standard Bank Group Private and confidential Introduction SPE London/SPEE Europe – CE June 2016: How Bank’s use Reserves & Resources Reports in Debt based Project Finance Neil Fairnie, Standard Bank Group 3Standard Bank – for those who don’t know (or think we’re someone else …) Our Presence Our People Over 150 years of experience in Africa Largest bank in Africa by assets, capital and headcount Approximately 49,000 employees in 20 African countries Headquartered in Johannesburg Growth on the continent is a key strategic focus area Operational overview Investment Banking in Africa Standard Bank Stanbic Bank Stanbic IBTC Bank CFC Stanbic Bank Representative office Largest Pan-African footprint In-country connections and expertise Excellent Cross-Border Connectivity Local balance sheet Dedicated Oil and Gas specialist teams in London, Johannesburg, Lagos, Nairobi and New York In-house petroleum engineer and ex-industry employees Full range of expertise in-country through local teams 0 400 800 1200 1600 2000 Market Cap Total Assets Book Value of Assets Total Deposits Total Advanced to Customers Standard Bank Nedbank FNB ABSA Investment banking presence across the region and in key markets strengthened by recent acquisitions: – IBTC Chartered Bank, Nigeria – CFC Bank, Kenya – Recently opened in South Sudan – Recently opened a branch office in Cote d’Ivoire ZAR million Standard Bank has an unrivalled presence in sub- Saharan Africa with on-the-ground presence in 20 African countries Africa’s 2015 top bank in the ranking of 1,000 banks globally – ranked 123 (only African bank in top 150) and Africa’s largest lender - The Banker 4Connecting Africa to the World Our global presence extends our services to clients in Asia, Europe, Middle East and the Americas Standard Advisory London Limited London Established in 1992, the London office has more than 250 employees in Investment and Transactional Banking Standard Advisory is a resource specialist, with strong commodities and corporate banking capabilities Standard US New York / Houston Standard acts as a sales and distribution platform for products and services from Africa into the USA We engage with corporates, funds and investors interested in doing business in Africa and connects them to appropriate opportunities Standard Bank (China Branch) Beijing / Shanghai / Hog Kong Shanghai and Hong Kong offices facilitate trade and investment requirements of our Chinese clients into Africa Our partnership with the ICBC boosts our ability to facilitate and finance increasing trade flows between Africa and Asia Standard (Dubai Branch) Dubai Ability to leverage of presence in the region to engage with key Middle East investors 5Today’s Talk SPE London/SPEE Europe – CE June 2016: How Bank’s use Reserves & Resources Reports in Debt based Project Finance Neil Fairnie, Standard Bank Group Bank finance is potentially a mystery to many people - even for those attending today that work in reserves and resource estimation on a daily basis I’ve assumed this to be the case and that a bit of scene setting is required, so … … apologies for those familiar with Senior Debt financing … but for those who aren’t hopefully by the end you’ll find it useful Private and confidential 1. Oil and Gas Lending Products SPE London/SPEE Europe – CE June 2016: How Bank’s use Reserves & Resources Reports in Debt based Project Finance Neil Fairnie, Standard Bank Group 7Cash flow based Structures Available at Different Stages of Asset Life Exploration Appraisal FEED EPC (s) agreed Pr oj ec t d ev el op m en t S ou rc es o f F un di ng Project/Development Finance Reserve Based Lending FDP Approval (Partners) FDP Approval (Government) First Production Completion Time Equity Construction Project contract(s) agreed RCF SPE London/SPEE Europe – CE June 2016: How Bank’s use Reserves & Resources Reports in Debt based Project Finance Neil Fairnie, Standard Bank Group 8Senior Debt Structures used in Oil and Gas Financing Project/Development Finance Based on future cash flows from a developing asset Structured around development risk Used by E&P companies at an early stage or as ring- fenced finance on particular assets Tight structuring and monitoring Cash flow-based financing Balance sheet-based financing Reserve Based Lending Based on future cashflows of producing assets Typically limited or no development risk Ideally based on portfolio of assets but can be based on a single asset Used by E&P companies Relative tightly structured Corporate RCF Assessed on a Corporate level, as opposed to on an asset level For more established companies Limited/no asset due diligence Less tightly structured Pre Export/Prepayment Finance Financing specific commodity/payment flow(s) Typically backed by corporate credit Limited asset due diligence depending on scale/diversification of asset base Increasing asset/corporate cashflows and production Level of structuring/ Lender controls SPE London/SPEE Europe – CE June 2016: How Bank’s use Reserves & Resources Reports in Debt based Project Finance Neil Fairnie, Standard Bank Group Private and confidential 2. Reserve Based Lending SPE London/SPEE Europe – CE June 2016: How Bank’s use Reserves & Resources Reports in Debt based Project Finance Neil Fairnie, Standard Bank Group 10 Introduction What is an RBL? Reserve based lending is a long established product in bank-led oil and gas financing, beginning onshore Texas in the 1970s before spreading to the North Sea and other geographies A loan where the amount borrowed is sized on the projected net present value of cash flows generated by an asset or portfolio of assets, already in production or shortly due to start production The Borrower is not required to have a strong balance sheet or a good profit track-record as the loan is sized on forward looking cash flows Allows Banks to support small to medium-sized independent upstream companies Also benefits large corporates as they are able to ring fence assets in difficult jurisdictions and raise money against them Loan proceeds usually used to develop an asset, although can be used for other specific purposes Recourse is to the borrower, secured by future cash flows, with loan proceeds primarily used to develop an asset – reserve-based lending is a hybrid of project finance, corporate finance and asset backed finance Small to large independent E&P companies National Oil Companies Private Investors Who would use an RBL and why ? Financing capital expenditure to improve production rates, delay decline rates Finance development projects or exploration/appraisal costs by leveraging off existing cash flows Financing working capital Financing an acquisition Finance carry-costs (i.e. IOC / NOC JV) SPE London/SPEE Europe – CE June 2016: How Bank’s use Reserves & Resources Reports in Debt based Project Finance Neil Fairnie, Standard Bank Group 11However …… an RBL is not a blank cheque !! SPE London/SPEE Europe – CE June 2016: How Bank’s use Reserves & Resources Reports in Debt based Project Finance Neil Fairnie, Standard Bank Group There are multiple restrictions and covenants applied to size the debt and define the re-payments terms 12Structural elements of an RBL RBLs are typically Revolving - the amount available for borrowing will increase or decrease during the loan-life to reflect changes in assumptions (changes in oil price, taxation, production performance, new reserves coming on-line, new discoveries, etc.) Typical tenors are 5years, may be shorter if certain conditions are in-place (i.e. licence expiry or renewal) The facility amount amortises and available funds that can be drawn reduce as expected production and future net cash flow decline towards the end of the loan-life The Borrowing Base Amount is periodically re-calculated (usually on a semi-annual basis) and is based on Cash Flows Available for Debt Service (“CFADS”) RBLs are mainly based on Proved Reserves although Probable Reserves may also be eligible to be included in the borrowing base given certain criteria. Possible Reserves and Contingent Resources are never considered in RBL financing. Input parameters are “risked” to reflect the level of confidence of the Technical Bank on the recoverability of the reserves being assessed during the loan-life – this is where the input from a Reserves Report (and its quality ….) is key Borrowing base calculations are based on a conservative oil price deck with gas / LNG prices usually discounted to that in the off- take / sales contracts Security is required by the Lenders : – shareholders of the company which holds the borrowing base assets pledge their issued shares, whilst the company itself pledges the actual assets – security is taken over a collection account by the Lenders, into which the entire proceeds from the sale of hydrocarbons produced by the borrowing base assets are deposited – incurrence of further indebtedness without lenders prior permission and restrict borrower from granting security over assets Lenders will strictly monitor liquidity and sources/uses of cash flows with documentation defining a strict waterfall – if required Lenders may place additional restrictions on the Borrower SPE London/SPEE Europe – CE June 2016: How Bank’s use Reserves & Resources Reports in Debt based Project Finance Neil Fairnie, Standard Bank Group 13Advantages and Disadvantages Field performance-related: amount that can be borrowed grows with increased production and reserves Lenders are motivated to support the long term future of the Borrower’s operations If the deal is syndicated, it raises the group’s profile in the international loan markets Revolver allows the Borrower to draw as and when required, thus reducing overall financing costs Allows for a variety of off-takers as security is tied more to the field performance than the offtake contracts The headline amount of the facility does not attract full commitment fee (only the Borrowing Base Amount) Cheaper financing costs than would normally be available to a company with a limited balance sheet Debt capacity may be higher than a traditional corporate loan Regular re-determination process gives early warnings of potential problems giving time to re-size/re-structure to suit forward economic conditions Field performance-related: if performance is poor, the Borrowing Base Amount can decrease, potentially triggering a larger than expected repayment in any given period Forced re-payments typically occur when borrower can least afford it While a revolver is flexible it does incur commitment fees on the committed undrawn amount As a bespoke financing, it is reasonably time