Conoil has negotiated an agreement with what amounts to the national oil company of Brazil, Petrobras, (the Brazilian government currently owns about 54% of the shares of Petrobras) to develop an inland oil field. The Project will involve a total investment estimated at current exchange rates of $2 billion in equivalent current US$. The first phase will include the exploration and development and completion of wells, building of a pipeline to ship the oil to a coastal location along with a loading facility for loading the oil onto tankers, and a facility to partially refine the heavy oil which will then be shipped to Conoil’s refineries in the U.S. The second phase of the project will involve production and shipping of the oil. Conoil has agreed to buy all the oil produced and pay the market prices that prevail at the times of the shipments. Conoil will invest $210 million and Petrobras will invest $190 million (so Conoil will have the majority equity interest) and the ‘Project’ will borrow the rest from a consortium of banks. A feature of this type of deal is that the lenders only have recourse to the assets of the ‘Project’ not to the assets of either of the equity sponsors (Conoil and Petrobras). The Federal Police force of Brazil has documented that numerous groups associated with terrorist activities throughout the world are present also in Brazil. What are some of the risks you see the Project facing? How do you think those risks could be managed (think broadly since the project needs to go through phase 1 before it starts operating)? What specific risks do the equity sponsors face
This will be used as more of a discussion post than needing a actual numerical answer.
Conoil has negotiated an agreement with what amounts to the national oil company of Brazil, Petrobras, (the Brazilian government currently owns about 54% of the shares of Petrobras) to develop an inland oil field. The Project will involve a total investment estimated at current exchange rates of $2 billion in equivalent current US$. The first phase will include the exploration and development and completion of wells, building of a pipeline to ship the oil to a coastal location along with a loading facility for loading the oil onto tankers, and a facility to partially refine the heavy oil which will then be shipped to Conoil’s refineries in the U.S. The second phase of the project will involve production and shipping of the oil. Conoil has agreed to buy all the oil produced and pay the market prices that prevail at the times of the shipments.
Conoil will invest $210 million and Petrobras will invest $190 million (so Conoil will have the majority equity interest) and the ‘Project’ will borrow the rest from a consortium of banks. A feature of this type of deal is that the lenders only have recourse to the assets of the ‘Project’ not to the assets of either of the equity sponsors (Conoil and Petrobras).
The Federal Police force of Brazil has documented that numerous groups associated with terrorist activities throughout the world are present also in Brazil.
What are some of the risks you see the Project facing? How do you think those risks could be managed (think broadly since the project needs to go through phase 1 before it starts operating)? What specific risks do the equity sponsors face?
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