Professional Documents
Culture Documents
Policy Statement
on the use of
Project Finance
Overview
The British Petroleum Company and Amoco Corporation are publicly traded oil and gas companies working in oil and gas exploration and
production(E&P), refining and marketing(R&M) and petrochemical production
1999
1998
199
7
BP
Earned $4.1bn on
revenues of $71.3bn and
assets of $54.6bn
% earnings : 68% from
E&P, 21% from R&M and
11% from petroleum
Issues
Financing Models
COMPAN
Y
Cash flow
Debt service
lends
equity
LENDER
COMPANY
equity
equity
Cash flow
Partner
lends
PROJECT
equity
LENDER
Partner
B
Corporate
Financing
PROJEC
T
equity
equity
Cash flow
Partner
A
Partner
B
Project Financing
More Costs
Longer time to arrange
Restricted managerial flexibility
Requires greater disclosure
Benefits
Risk Management
Expanded firms debt capacity
Additional interests tax shield
Government Concessions
Corporate
Project Financing
Risk Allocation
Control and
Monitoring
Control vested in
management
Organization
Transaction
Costs
Lower
High
Freely used
Policy Statement of BP
Amoco
Use internal funds to finance capital expenditures except in particular scenarios
mentioned below:
Mega projects
Large enough to cause material harm to the companys earnings, debt rating,
etc.
Relative Size and Risk
Ability to hold a diversified portfolio (much smaller investment in PF)
Prior to the merger Amoco viewed $2B and BP $3B and up as potential project
finance candidates
Projects in Politically volatile areas
Political risk, currency inconvertibility, lack of property rights
Host govt. would be less likely to tolerate hostile action against the project
Could jeopardize access to future credit from financing community(WB,
ADB, etc. )
PF used in Kaltim Prima Coal Mine project in Indonesia to manage Indonesian
exposure
JV with heterogeneous partners
Manage financial needs of partners with weaker credit capabilities
Negotiate with lenders rather than letting weaker partners negotiate for the
Case analysis
Case Analysis
Thank you