Finance and Debt
How should PDVSA finance the development of the Orinoco Basin? What are the costs and benefits of using project finance instead of traditional internal debt finance?
PDVSA should think about financing the development of the Orinoco Basin by using project finance. The company (PDVSA) is looking forward to the financing of a public-private “chain” of deals between PDVSA and other foreign organizations that posses technological know-how, crude oil marketing capacity and creditworthiness, to develop the Orinoco Basin. This is good to them because this type of deal will allow PDVSA to keep its debt and cash capabilities, in case of an uncertainty, creating a lower risk for the company.
Benefits:
* Having a debt capacity, more flexibility, lower risk. * Even though Venezuela as a country is graded B if PDVSA can make a deal with a AA company it can get a higher investment grading. * Attracting more foreign investors
Costs:
* It takes more time to create business strategies for these type of projects. * The majority of the debt would require PRI. * Every business owner requires help (professional) to design a financial plan for his organization. * Costly process, a lot of expenses in the way, before creating the project.
What are Petrozuata’s 3 or 4 most important project risk? How does the deal structure address those risks? Who would bear the risks if the project were financed internally by PDVSA instead? * Sponsors Creditworthiness: Consider creditworthiness of the sponsors, since PDVSA is located in Venezuela it gets a B rating, which is not the optimal scenario.
* Projects Economics: technical, reserve and construction risks, financial projections.
* Venezuela’s Sovereign risk: possible government action, currency market volatility and Venezuelan business conditions.
These risks are being adressed by: * Cash waterfall or prioritization of cash flows. * Adquiring the PRI.. * Really low
PDVSA should think about financing the development of the Orinoco Basin by using project finance. The company (PDVSA) is looking forward to the financing of a public-private “chain” of deals between PDVSA and other foreign organizations that posses technological know-how, crude oil marketing capacity and creditworthiness, to develop the Orinoco Basin. This is good to them because this type of deal will allow PDVSA to keep its debt and cash capabilities, in case of an uncertainty, creating a lower risk for the company.
Benefits:
* Having a debt capacity, more flexibility, lower risk. * Even though Venezuela as a country is graded B if PDVSA can make a deal with a AA company it can get a higher investment grading. * Attracting more foreign investors
Costs:
* It takes more time to create business strategies for these type of projects. * The majority of the debt would require PRI. * Every business owner requires help (professional) to design a financial plan for his organization. * Costly process, a lot of expenses in the way, before creating the project.
What are Petrozuata’s 3 or 4 most important project risk? How does the deal structure address those risks? Who would bear the risks if the project were financed internally by PDVSA instead? * Sponsors Creditworthiness: Consider creditworthiness of the sponsors, since PDVSA is located in Venezuela it gets a B rating, which is not the optimal scenario.
* Projects Economics: technical, reserve and construction risks, financial projections.
* Venezuela’s Sovereign risk: possible government action, currency market volatility and Venezuelan business conditions.
These risks are being adressed by: * Cash waterfall or prioritization of cash flows. * Adquiring the PRI.. * Really low