Funding Marginal Oil Fields in Africa: ‘Address completion, liquidity risks’, operators told

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By Nneka Ezeemo, London

Small and marginal oil fields’ operators in Africa have been called upon to focus on addressing issues of completion and liquidity risks, as these are critical determinants of their ability to attract financing from financial institutions.

In his presentation at the Africa Small and Marginal Oil Fields Development Conference in London titled:Accessing Capital for Small and Marginal Oil Fields in Africa,’ Damien Mauvais, Head Oil & Gas, London, Standard Bank Group, disclosed that completion and liquidity risk are major issues that would dominate the analysis of lenders.

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He further called on the small and marginal oil fields’ operators in Africa to properly highlight the right risk and reward to potential providers of capital if they intend to address the challenges of funding.

He noted that marginal field operators looking for funding should have a clear strategy, with a well defined route to production, which should be part of a wider growth strategy.

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He advised the marginal operators to ensure that put in place the right team with a track record of value creation.

According to him, operators desirous of attracting funding must display consistent progress in the area of production, and should be reasonable in their promises, while making sure that they do not under-deliver.

“They should be able to demonstrate asset value, through access to good data and opinion from credible third parties,” he stated.

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He identified other issues that would be key to banks seeking to provide funding to marginal fields’ operators to include: project execution, sub-surface, country risk and liquidity.

Continuing, he said, “Strong comfort on subsurface will be a minimum requirement as well as good quality data supported by production test, while the lenders would want independent reserve/resource report to confirm operator’s assumptions.

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“Lenders would also want development concept to be final and all approvals obtained; key contracts to be executed, especially in drilling, FPSO, pipelines and subsea infrastructure; independent technical consultant to opine on development concept and confirm projected cost and timing.

“African banks have been traditionally cautious about debt for non-producing assets, while the ability of the NOC & other partners to fund into the development is increasingly becoming a concern for lenders.

“In the area of liquidity, ensuring that the project is fully funded and the company appropriately capitalised will be key, while debt providers will require equity to be funded ahead of debt and liquidity tests including cost overrun and delays to be met.

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