Services and Equipment for the Russian Oil & Gas Industry RPI International Conference December 2003 Moscow, Russia Services and Equipment for the Russian

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


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


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


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


Major industry drivers

5

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


Sources of Financing

6

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


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)

7


Export Receivables Backed Loans – Trend 2000-2003

8

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


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

9


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

10


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

11


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


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


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.


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


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

16


Future Trends in Financing Russian O&G Industry

I. Large Investment Projects

II. Further Sector Consolidation

III. Inflow of Foreign Capital and Technology


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


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


I. Large Investment Projects – cont.

– Revamp / debottlenecking of existing facilities and new facilities

• Upstream assets

• Refineries and other downstream assetsO&G

Services


II. Further Sector Consolidation

• Rationalization of existing players

• Drive for efficiency


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


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


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


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

25


IFC Committed $500 million in Russia in FY2003

0

100

200

300

400

500

millions

of

US$

IFC totalcommitment

26


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

27

Documents

Services and Equipment for the Russian Oil & Gas Industry RPI International Conference December 2003 Moscow, Russia Services and Equipment for the Russian