In this paper I shall present four separate cases each of which shall illustrate a different aspect or Alternative of project financing that is common in the Petroleum Industry.
Case I – shall illustrate a typical Financing For An Independent Operator.
Case II – is a Financing of a Canadian Petroleum Plant Backed By a Guaranty of Completion.
Case III – describes a Financing for the Development of an offshore Gas Project in a loss developed Country Backed by a Guaranty of Completion.
Case IV – is an example of a Financing for a gas pipeline Backed by a continuing Undertaking or Through put Agreement.
For each of these Cases, I shall start with a hypothetical loan request including an economic forecast and then I shall present an Outline of a proposed financing plan for that situation. I shall also describe the kind of analysis that a lender would do in connection with each Case.
The Oil and Gas Production Loan is loan to an independent operator or another type of loan to a company or individual that is based solely on the collateral of reserves of oil or gas in the ground. In table A, I have constructed a projection that could be applicable to properties owned by an independent operator and in the next section of this paper; I have constructed a hypothetical Financial Plan covering a loan to that operator. Both the projection and the Financial Plan describe a financing for an independent operator located in the United States, but these same concepts would also be applicable to a Canadian independent.
FINANCIAL PLAN FOR CASE I
Financing For An Independent Operator
(An Oil and Gas Production Loan)
Proposed 4 1/2 Year Oil Fund Gas Production Loan To INDEPENDENT OPERATING COMPANY
$ 16,000,000 (to be taken down on June 30, 1979).
To refinance existing debts and for acquisition of additional leases.
Effective with runs as of July 1, 1979, 30% of Gross Income from the Property (Property) evaluated by Independent Petroleum Engineering Consultants as of July 1, 1979 (Report) shall be applied on a monthly basis against the Loan through December 31, 1979 and thereafter 50% of Gross Income shall be applied against the Loan. All amounts applied against the Loan shall go first to interest and then to principal.
In the event that the outstanding balance on the Loan on the dates indicated below shall exceed the Maximum balance (Maximum balance), then the Independent Operating Company (Operator) shall make an Additional Payment (Additional Payment) in an amount sufficient to reduce the outstanding balance below the Maximum Balance.
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Monthly runs shall be payable directly to the Bank for application on the Loan.
Prior to any lending hereunder, the rank shall receive title opinions (Opinions) from acceptable title lawyers to the effect that the Operator has (on the date of the Loan) good and marketable title to each of the leases on the Property free and clear of all liens.