Latin American Oil & Gas Deal of the Year 2001
Venezuela's latest heavy oil deal ? Hamaca Phase I ? stunned last
year's market with its many innovations. It is the first Latin oil
and gas project with US Ex-Im pre- and post-completion cover,
allowing for an extended tenor, and the first such deal financed
under US Ex-Im's fast-track scheme. It is also the first Venezuelan
hydrocarbons deal to feature ECA support; and the first Venezuelan
project to benefit from new OECP rules, under which repayments can
be sculpted rather than take the form of set semi-annual
repayments. Financing was concluded rapidly ? with intercreditor
negotiations taking just four months.
The project sponsors are Phillips Petroleum (40%), Petroleos de Venezuela (PDVSA ? 30%) and Texaco (30%). Funds are issued to Hamaca Holdings LLC, a wholly owned subsidiary of Philips and Texaco, and to Corpoguanipa S.A, a wholly owned subsidiary of PDVSA, under a contractual joint operation, set up to run the integrated heavy oil project. The project operator is Petrolera Ameriven, S.A., owned on a pro rata basis by the sponsors.
Mandated lead arrangers BNP Paribas (administration agent) and Royal Bank of Scotland (RBS-documentation agent), together with US Ex-Im, closed in June last year $1.1 billion in senior secured debt toward the $4 billion total funding. RBS and BNP Paribas beat off competition from a Citibank-led group for the mandate in February 2001. Six further lead arranging banks joined the deal: Bank of Tokyo Mitsubishi (syndication agent), Barclays Bank, Bayerische Landesbank, Export Development Canada (EDC) and WestLB (technical agent).
The deal is the fourth Venezuelan project to monetize heavy oil assets and is thus part of PDVSA's efforts to significantly expand production through foreign partnership and capital. Unlike the previous three deals (Sincor, Cerro Negro and Petrozuata) which featured bank debt and bond issues, Hamaca benefits from innovative Ex-Im cover.
Pricing on the $470 million commercial debt is 85bp pre-construction and 225-425 bp over Libor during paydown. Tenor on the commercial tranche is 14 years. The loans were rated Baa3 by Moody's and Fitch.
?We took an approach whereby we could come in confidently with a pricing that made sense, without taking an enormous risk in the syndications market. It was comfortable for the underwriters and attractive to the sponsors,? says Michael Crosland, senior director at RBS structured finance. Syndication closed successfully at the end of July.
Pricing on the $628 million US Ex-Im guaranteed portion is said to be ?very competitive given current market conditions.? The US Ex-Im tranche pushes its tenor out to 17 years.
All production from the project will be sold to the spot market. Project sponsors have agreed to offtake any output not sold under a life-of-project agreement. And, in the event of a shortfall of funds for debt service due to a drop in oil pricing, the sponsors have agreed a margin support mechanism based on selling the syncrude at within $2 of a price formula based on Louisiana Light Sweet (LLS) crude oil.
Project revenues are entirely dollar-denominated and paid to a security trustee through offshore accounts. Under Moody's base case scenario minimum, with leverage of 30% and a product pricing assumption of $18/bbl LLS run flat, a minimum debt service cover ratio (DSCR) of 2.25x is achievable, with an average 10-year DSCR of 2.67x.
Supplemental project debt can be raised up to a DSCR of 1.95x coupled with a ratings reaffirmation or majority lender's consent. A 40% equity level must be maintained for the life of the debt. However, equity can take the form of capital contributions (including asset contributions) subordinated loans from the sponsors to their respective project subsidiaries and retained cash from crude sales during the development production period.
A possible bond issue, a direct obligation of the borrowers, is part of the future funding plan (should capital markets permit) and could take total debt funding to $2.2 billion.
The project is located in the Orinoco Belt, which encompasses 657 sq km of the biggest known hydrocarbon deposit in the world with an estimated 30 billion-plus barrels of oil (independent reserve engineer DeGolyer and MacNaughton estimates 43 billion). 2.1 billion of these will be recovered during the project's 34-year production life.
The scheme involves two components: first, the development and transport of heavy oil from the Hamaca region to an oil and petrochemical complex in Jose, Venezuela; and second, upgrading the heavy oil into a medium grade crude oil.
The project is a pivotal part of both private sponsors' strategies. For Texaco, Hamaca represents a 12% increase in its worldwide barrels of oil equivalent (BOE) reserves and will equate to 7% of the company's total production when it is completed. Phillips also adds 635 million BOE to its proven hydrocdarbon reserves in 2000.
When fully operational the plant will produce 190,000 barrels per day of extra heavy 8.6-degree API crude which will be upgraded into 180,000 bpd of 26-degree API crude at the Jose oil and petrochemical complex.
The EPC contract was awarded to Fluor Daniel in September 2000 on a lump sum turnkey basis. Construction on the site began in August 2000. Partial completion is met when the project achieves 120,000 bpd. Full completion is projected for 2004.
Recently, however, PDVSA suffered a downgrade from Fitch. The agency has identified three main risks facing the company: political risk, its vulnerability to shareholder demands, and its ability to secure private sector investment.
PDVSA needs $23.4 billion in investment over the next five years, and continual investment of around $2 billion per year is required annually over that period ? just for upstream activities. There is a possibility PDVSA's cash flow might be redirected to provide the government with funds for other areas.
Country risk and a fall in oil prices may yet have a detrimental effect on acquiring future financing at favourable rates.
Petrolera Ameriven
Location: Orinoco Belt, Venezuela
Sponsors: Philips Petroleum (40%), Texaco (30%), Petroleos de Venezuela (PDVSA-30%)
Borrowers: Hamaca Holdings, LLC; Corpoguanipa, SA.
Total cost: $4 billion
Commercial debt: $470 million
Lead arrangers: Royal Bank of Scotland (documentation agent), BNP Paribas (administrative agent), Bank of Tokyo Mitsubishi (syndication agent), WestLB (technical agent), Barclays Bank, Bayerische Landesbank, EDC, ING.
Export credit agency: US Exim, $628 million comprehensive guarantee
Financial adviser: Morgan Stanley
Lawyers to the lenders: Davis Polk
Lawyers to the sponsors: Latham & Watkins
Lawyers to US Ex-Im: Freshfields
The project sponsors are Phillips Petroleum (40%), Petroleos de Venezuela (PDVSA ? 30%) and Texaco (30%). Funds are issued to Hamaca Holdings LLC, a wholly owned subsidiary of Philips and Texaco, and to Corpoguanipa S.A, a wholly owned subsidiary of PDVSA, under a contractual joint operation, set up to run the integrated heavy oil project. The project operator is Petrolera Ameriven, S.A., owned on a pro rata basis by the sponsors.
Mandated lead arrangers BNP Paribas (administration agent) and Royal Bank of Scotland (RBS-documentation agent), together with US Ex-Im, closed in June last year $1.1 billion in senior secured debt toward the $4 billion total funding. RBS and BNP Paribas beat off competition from a Citibank-led group for the mandate in February 2001. Six further lead arranging banks joined the deal: Bank of Tokyo Mitsubishi (syndication agent), Barclays Bank, Bayerische Landesbank, Export Development Canada (EDC) and WestLB (technical agent).
The deal is the fourth Venezuelan project to monetize heavy oil assets and is thus part of PDVSA's efforts to significantly expand production through foreign partnership and capital. Unlike the previous three deals (Sincor, Cerro Negro and Petrozuata) which featured bank debt and bond issues, Hamaca benefits from innovative Ex-Im cover.
Pricing on the $470 million commercial debt is 85bp pre-construction and 225-425 bp over Libor during paydown. Tenor on the commercial tranche is 14 years. The loans were rated Baa3 by Moody's and Fitch.
?We took an approach whereby we could come in confidently with a pricing that made sense, without taking an enormous risk in the syndications market. It was comfortable for the underwriters and attractive to the sponsors,? says Michael Crosland, senior director at RBS structured finance. Syndication closed successfully at the end of July.
Pricing on the $628 million US Ex-Im guaranteed portion is said to be ?very competitive given current market conditions.? The US Ex-Im tranche pushes its tenor out to 17 years.
All production from the project will be sold to the spot market. Project sponsors have agreed to offtake any output not sold under a life-of-project agreement. And, in the event of a shortfall of funds for debt service due to a drop in oil pricing, the sponsors have agreed a margin support mechanism based on selling the syncrude at within $2 of a price formula based on Louisiana Light Sweet (LLS) crude oil.
Project revenues are entirely dollar-denominated and paid to a security trustee through offshore accounts. Under Moody's base case scenario minimum, with leverage of 30% and a product pricing assumption of $18/bbl LLS run flat, a minimum debt service cover ratio (DSCR) of 2.25x is achievable, with an average 10-year DSCR of 2.67x.
Supplemental project debt can be raised up to a DSCR of 1.95x coupled with a ratings reaffirmation or majority lender's consent. A 40% equity level must be maintained for the life of the debt. However, equity can take the form of capital contributions (including asset contributions) subordinated loans from the sponsors to their respective project subsidiaries and retained cash from crude sales during the development production period.
A possible bond issue, a direct obligation of the borrowers, is part of the future funding plan (should capital markets permit) and could take total debt funding to $2.2 billion.
The project is located in the Orinoco Belt, which encompasses 657 sq km of the biggest known hydrocarbon deposit in the world with an estimated 30 billion-plus barrels of oil (independent reserve engineer DeGolyer and MacNaughton estimates 43 billion). 2.1 billion of these will be recovered during the project's 34-year production life.
The scheme involves two components: first, the development and transport of heavy oil from the Hamaca region to an oil and petrochemical complex in Jose, Venezuela; and second, upgrading the heavy oil into a medium grade crude oil.
The project is a pivotal part of both private sponsors' strategies. For Texaco, Hamaca represents a 12% increase in its worldwide barrels of oil equivalent (BOE) reserves and will equate to 7% of the company's total production when it is completed. Phillips also adds 635 million BOE to its proven hydrocdarbon reserves in 2000.
When fully operational the plant will produce 190,000 barrels per day of extra heavy 8.6-degree API crude which will be upgraded into 180,000 bpd of 26-degree API crude at the Jose oil and petrochemical complex.
The EPC contract was awarded to Fluor Daniel in September 2000 on a lump sum turnkey basis. Construction on the site began in August 2000. Partial completion is met when the project achieves 120,000 bpd. Full completion is projected for 2004.
Recently, however, PDVSA suffered a downgrade from Fitch. The agency has identified three main risks facing the company: political risk, its vulnerability to shareholder demands, and its ability to secure private sector investment.
PDVSA needs $23.4 billion in investment over the next five years, and continual investment of around $2 billion per year is required annually over that period ? just for upstream activities. There is a possibility PDVSA's cash flow might be redirected to provide the government with funds for other areas.
Country risk and a fall in oil prices may yet have a detrimental effect on acquiring future financing at favourable rates.
Petrolera Ameriven
Location: Orinoco Belt, Venezuela
Sponsors: Philips Petroleum (40%), Texaco (30%), Petroleos de Venezuela (PDVSA-30%)
Borrowers: Hamaca Holdings, LLC; Corpoguanipa, SA.
Total cost: $4 billion
Commercial debt: $470 million
Lead arrangers: Royal Bank of Scotland (documentation agent), BNP Paribas (administrative agent), Bank of Tokyo Mitsubishi (syndication agent), WestLB (technical agent), Barclays Bank, Bayerische Landesbank, EDC, ING.
Export credit agency: US Exim, $628 million comprehensive guarantee
Financial adviser: Morgan Stanley
Lawyers to the lenders: Davis Polk
Lawyers to the sponsors: Latham & Watkins
Lawyers to US Ex-Im: Freshfields
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