Abstract

Over the past decade resource based industries have lived through rapidly changing times that are still by no means settled. As much as many of us would wish to revert to the halcyon days of the fifties and sixties there is no turning back. To meet the challenges confronting the industry financial institutions have also shifted gears to meet funding requirements. Major capital intensive projects, with massive front end investments before development of cash flow test the imagination of corporate financial officers and their bankers. Same acceptable models have emerged particularly in North Sea financing, but few are totally simi1ar_ The challenge is to steer a course acceptable to the operators and political authorities and still reduce risk to a level acceptable to the lenders at a commensurate rate of return.

Discussion

It is difficult to discuss energy financing in the international area without touching on certain political events of this decade. Over this period few subjects have occupied the world's attention or caused more nervous concern than has energy pricing and supply. Before the crude oil price increases of the mid-seventies, all but a few non-OPEC developing countries, and indeed developed countries, would have been ill advised to invest in the energy supply sector. Imported oil was cheap, and capital investment in local supply development would have been a particularly uneconomic form of import substitution. Although the October 1973 War brou9ht the world crude oil supply and price into sharp focus, warnings of pending change had been apparent much earlier.

The June 1967 Middle East War resulted in the closure of the Suez Canal and the consequent rush to finance and overbuild the world supertanker fleet. With the rupture of the Trans Arabian Pipeline in Syria in May, 1970 and the continuing Biafran War, Europe approached a 25 percent dependency upon Libyan crude oil supply. As a result, that country was able to raise their price effective March 20, 1971 to $3.447 from $2.55 per barrel and to parity with comparable West Texas crude oil price. Despite this early warning it required the October 1973 War to shock the industrial world into the great reality they had lost the power to set world oil prices, although supply at market demand was still considered an acquired right.

In retrospect the 1970's began innocently enough, as certain serious international problems were largely ignored. To a major degree the international petroleum industry was self-financing with most borrowings supported by the general corporate strength on the domestic market. There was small doubt by most in the industry the world was awash with crude oil supply and stability of price in the market place was the prime concern. Most domestic bankers fully agreed with the minority opinion of the United States Task Force on Oil Import Control in February 19;0, that an import tariff of $1.45 per barrel, in lieu of the quota system, would have serious consequences to the domestic industry.

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