Accessing capital for the development of marginal fields in Africa
Raising capital for E & P projects has always been one of the daunting challenges for operators in Africa. Inability to raise capital is one of the most crucial militating factors in the development of both large and marginal assets.
While there are many sources of funding, Damien Mauvais, Managing Director and Head, Oil & Gas Investment Banking, Standard Bank London, said that a challenging start and main key for operators to receive funding is offering the right risk and reward to providers of capital. According to Mauvais, there are multiple sources of capital are available to the right equity and debt story.
Sources of funding include the following:
Equity: The pros is that there is no cash cost and there’s flexible use of proceed, The cons are dilution and control
Asset Deal/Farm out: The pros are limits appraisal and development risk, potential for carry and it also aids technical and financial expertise, The demerits include dilution of interest prior to value realization and control
Managing Director/Head, Oil & Gas Investment Banking,Standard Bank, London
Hybrid/Mezzanine: This is funding beyond traditional debt capacity and brings better shareholders equity. Argument against this source of funding is the cost and potential impact on ability to raise senior debt.
Development Financing/ABL: It is the cheapest source of funding and only senior deb t available for non-producing assets. However, it takes 12 to 18 months before production only. It is highly covenanted and has about 50% leverage at best. It has been identified that putting the right story to capital providers is very essential in order to attract funding. It entails:
A Clear Strategy: Operators seeking for funding must create and show well defined route to production and also part of a wider growth strategy.
The Right Team: Operators must show track record of value creation. How they intend to do it or whether they have done it before.
Show Progress: It is necessary to show consistent progress toward production. Don’t over promise or under deliver.
Be Able to Demonstrate Asset Value: Operators must provide access to good data and get concrete opinion from credible third party.
Well Identified Upside: The plan presented must be organic – having room for further development and possibility for acquisition.
On sharing his thoughts on accessing capital for the development of marginal fields in Africa, Damien Mauvais of Standard Bank London, further submitted that it is good to start engaging capital providers early and operators should do proper home work and be prepared. If necessary hire an advisor and should have it at the back of their mind that you never raise too much equity.
Damien Mauvais will be presenting another keynote paper at Africa Small & Marginal Oil Fields Conference scheduled for 17 -18 August 2016 at Crowne Plaza, the City, London
16-year experience in advising and raising capital for oil and gas companies. Prior to Standard Bank, he worked with Barclays Capital (Oil & Gas Investment Banking), Natixis Bleichroeder (ECM Natural Resources) and Natixis (head of reserve based lending). Damien has led multiple corporate debt financings or RBL (Petrokazakhstan, Burren Energy, Venture Production, Maurel et Prom, Addax Petroleum, Tullow Oil plc, Premier Oil…), development financings (Pearl Energy, CH4, Kosmos Energy, Delek Drilling...) and has raised equity or convertible bonds for Maurel et Prom, Rosneft, Raspadskaya, Petroneft, Premier Oil, Ophir Energy, Kosmos Energy, Oryx Petroleum,...
He has advised on M&A and strategic transactions for Kosmos Energy, Premier Oil, Taqa, Socar, BP, Delek Energy,...
Damien graduated from the Institut d’Etudes Politiques of Aix-en-Provence and ESCP-EAP (Paris Business School).