Offshore Field Development Finance

Kay Palma

Galoc Production Company

The recent strengthening of oil prices has been accompanied by a dramatic increase in the costs of doing business. Whilst this has dramatically raised the stakes of the offshore oil and gas business, until recently there has been little shortage of financial institutions wishing to provide finance. This paper addresses a way in which development of a marginal oil field can be undertaken by small independent companies.

In essence, the objective of financing a development is to facilitate that development whilst minimizing the draw on the company’s cash which is essential to enable simultaneous pursuit of the next exploration or development opportunity. To achieve this requires self contained financing with the principal security being the field itself. The extent to which this can be achieved is dependent on the quality of the asset, the track record of the company to deliver against expectations and inevitably, the level of commitment demonstrated by the company.

The requirements of project finance are substantial and far reaching. The need for such finance needs to be recognized from the outset and incorporated into the project execution plan. Not only does the team responsible for the development have to answer to its own management and the Joint Venture partners, but also the project banks and their advisers. It is the job of the finance personnel in the overall development team to manage this extra burden whilst providing scope for the technical personnel to deliver the development.

This paper addresses the process of setting up project finance of an offshore development, the parties involved and the timeframe from identifying the need for such finance through to completion of funding and commencement of repayment.