Refer to the Excel file Petrozuata on BB. If the projects sponsors project that oil prices will decrease 1% a year for the next five years, should they proceed with the project? Why or why not? Are they likely to get an investment grade credit rating? What if oil price growth was projected to be +3%?
A B C D E F G H 1 Petrolera Zuata, Petrozuata C.A.: Analysis of Sponsor Returns and Debt Coverage Ratios 2 3 Assumptions Initial Oil Price in 1996 Annual Change in Oil Price (1996-2012) Royalty Rate (2001-2008) Royalty Rate (2009-2034) Total Debt Financing Leverage: Debt/Total Project Cost Project's Total Cost Tax Rate (Change these six RED variables) $12.25 2.5% 1.0% 16.7% $1,450,000 60% $2,416,667 34% 5 6 7 8 9 10 11 12 13 14 15 16 17 TU 19 20 21 22 23 24 Year Asset Beta Risk-free Rate (Yield on the 30-year Treasury Bond as of January 1997 Market Risk Premium Country Risk Premium 0.60 6.81% 7.50% 0.00% Forecasted Maya Price Total Debt Service 50 26 1996 27 1997 28 1998 29 1999 30 2000 31 2001 32 2002 33 2003 34 2004 35 2005 36 2006 37 2007 38 2008 39 2009 40 2010 41 2011 42 2012 43 2013 44 2014 45 2015 46 2016 47 2017 48 2018 $12.25 $12.56 $12.87 $13.19 $13.52 $13.86 $14.21 $14.56 $14.93 $15.30 $15.68 $16.07 $16,47 $16.89 $17.31 $17.74 $18.19 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 Change in Maya Total Price Revenue 2.5% 2.5% SO 2.5% $78,524 2.5% $429,059 2.5% $803,290 2.5% $560,499 2.5% $580,141 2.5% $594,310 2.5% 5608,833 2.5% $623,720 2.5% $638,978 2.5% $654,618 2.5% 5670,649 2.5% $687,081 2.5% $703,924 2.5% $721,187 2.5% $738,882 0.0% $757,020 0.0% $758,224 0.0% $759,457 0.0% $760,722 0.0% $762,018 0.0% $763,347 Cash Available for Debt Service (CADS) ($80,007) (5610,492) ($820,154) ($139,352) $243,952 $383,869 $374,482 $351,470 $383,135 $379,409 $415,819 $416,376 $417,733 $364,040 $353,700 $359,505 $367,531 $309,595 $341,704 $373,643 $365,851 $366,964 $312,682 Total Debt Outstanding SO $1,000,000 $1,024,299 $1,242,981 $1,450,000 $1,411,120 $1,372,240 $1,333,360 $1,268,892 $1,205,447 $1,103,295 $992,187 $864,195 $768,166 $680,692 $576,861 $456,838 $408,576 $354,212 $256,355 $136,753 $75,000 $75,000 SO $935,950 (563,079) $113,580 $85,113 ($157,629) (5154,472) ($151,315) (5171,563) ($165,270) ($195,423) ($195,059) (5201,103) ($161,187) ($145,382) ($153,095) ($159,037) ($83,154) (584,614) ($119,749) ($131,281) (568,159) (6,405) Debt Equity Service Cash Coverage Flors Ratio ($79,035) ($1,986) ($550,148) $1,576 $185,047 $227,819 2.44 $221,589 2.42 $190,031 2.32 $214,719 2.23 $199,063 2.30 $220,578 2.13 $218,294 2.13 $236,588 2.08 $210,755 2.26 $204,461 2.43 $203,439 2.35 $246,435 2.31 $225,711 3.72 $239,522 4.04 $248,128 3.12 $266,131 2.79 $329,682 5.38 $306,277 48.82 28 1998 $12.87 2.5% $78,524 ($820,154) $1,024,299 (563,079) ($550,148) 29 1999 $13.19 2.5% $429,059 ($139,352) $1,242,981 $113,580 $1,576 30 2000 $13.52 2.5% $803,290 $243,952 $1,450,000 $85,113 $185,047 31 2001 $13.86 2.5% $560,499 $383,869 $1,411,120 ($157,629) $227,819 2.44 32 2002 $14.21 2.5% $580,141 $374,482 $1,372,240 ($154,472) $221,589 2.42 33 2003 $14.56 2.5% $594,310 $351,470 $1,333,360 ($151,315) $190,031 2.32 34 2004 $14.93 2.5% $608,833 $383,135 $1,268,892 ($171,563) $214,719 2.23 35 2005 $15.30 2.5% $623,720 $379,409 $1,205,447 ($165,270) $199,063 2.30 36 2006 $15.68 2.5% $638,978 $415,819 $1,103,295 ($195,423) $220,578 2.13 37 2007 $16.07 2.5% $654,618 $416,376 $992,187 ($195,059) $218,294 2.13 38 2008 $16.47 2.5% $670,649 $417,733 $864,195 (S201,103) $236,588 2.08 39 2009 $16.89 2.5% $687,081 $364,040 $768,166 ($161,187) $210,755 2.26 40 2010 $17.31 2.5% $703,924 $353,700 $680,692 ($145,382) $204,461 2.43 41 2011 $17.74 2.5% $721,187 $359,505 $576,861 ($153,095) $203,439 2.35 42 2012 $18.19 2.5% $738,882 $367,531 $456,838 ($159,037) $246,435 2.31 43 2013 $18.64 0.0% $757,020 $309,595 $408,576 ($83,154) $225,711 3.72 44 2014 $18.64 0.0% $758,224 $341,704 $354,212 ($84,614) $239,522 4.04 45 2015 $18.64 0.0% $759,457 $373,643 $256,355 ($119,749) $248,128 3.12 46 2016 $18.64 0.0% $760,722 $365,851 $136,753 ($131,281) $266,131 2.79 47 2017 $18.64 0.0% $762,018 $366,964 $75,000 (568,159) $329,682 5.38 48 2018 $18.64 0.0% $763,347 $312,682 $75,000 ($6,405) $306,277 48.82 49 2019 $18.64 0.0% $764,708 $293,660 $75,000 ($6,405) $287,255 45.85 50 2020 $18.64 0.0% $766,104 $264,839 $75,000 ($6,405) $258,434 41.35 51 2021 $18.64 0.0% $767,535 $281,934 $75,000 ($6,405) $241,232 44.02 52 2022 $18.64 0.0% $769,001 $276,305 SO ($75,000) $201,306 3.68 53 2023 $18.64 0.0% $770,504 $278,150 SO $278,150 54 2024 $18.64 0.0% $772,045 $273,514 SO $273,514 55 2025 $18.64 0.0% $773,624 $274,138 SO $274,138 56 2026 $18.64 0.0% $775,243 $263,068 SO $263,068 57 2027 $18.64 0.0% $776,902 $262,329 SO $262,329 58 2028 $18.64 0.0% $778,603 $260,484 SO $260,484 59 2029 $18.64 0.0% $780,346 $250,113 SO $250,113 60 2030 $18.64 0.0% $782,133 $234,648 SO $234,648 61 2031 $18.64 0.0% $783,964 $238,181 SO $238,181 62 2032 $18.64 0.0% $785,842 $231,118 SO $231,118 63 2033 $18.64 0.0% $787,766 $229,576 SO $229,576 64 2034 $18.64 0.0% $789,738 $215,770 SO $215,770 65 66 67 Note: This simplified version of the Petrozuata project's economics is designed to accompany Petrolera Zuata, Petrozuata C.A., HBS No. 299-012. Although the have been made to 68 model is based on the actual model used, a number of changes have been made to facilitate the analysis. 69 70 Model Output Minimum Debt Service Coverage Ratio (DSCR) Year of Minimum DSCR Average DSCR Internal Rate of Return Net Present Value 2.08 2008 10.46 25.1% $267,607 IRR and Minimum DSCR Output Table IRR as a Function of the Number of Years of Cash Flow Leverage IRR Min. DSCR Number of Years With Cash Flow IRR ) 1 2 3 4 40% 45% 50% 55% 60% 65% 70% 18.4% 19.5% 21.0% 22.8% 25.1% 28.2% 32.5% 39.0% 49.0% 3.05 2.73 2.47 2.25 2.08 1.93 1.80 1.69 1.59 5 10 15 20 25 30 34 15.9% 22.7% 24.3% 24.9% 25.0% 25.0% 25.1% 75% 5 7 80% 3 2 1 A B C D E F G H 1 Petrolera Zuata, Petrozuata C.A.: Analysis of Sponsor Returns and Debt Coverage Ratios 2 3 Assumptions Initial Oil Price in 1996 Annual Change in Oil Price (1996-2012) Royalty Rate (2001-2008) Royalty Rate (2009-2034) Total Debt Financing Leverage: Debt/Total Project Cost Project's Total Cost Tax Rate (Change these six RED variables) $12.25 2.5% 1.0% 16.7% $1,450,000 60% $2,416,667 34% 5 6 7 8 9 10 11 12 13 14 15 16 17 TU 19 20 21 22 23 24 Year Asset Beta Risk-free Rate (Yield on the 30-year Treasury Bond as of January 1997 Market Risk Premium Country Risk Premium 0.60 6.81% 7.50% 0.00% Forecasted Maya Price Total Debt Service 50 26 1996 27 1997 28 1998 29 1999 30 2000 31 2001 32 2002 33 2003 34 2004 35 2005 36 2006 37 2007 38 2008 39 2009 40 2010 41 2011 42 2012 43 2013 44 2014 45 2015 46 2016 47 2017 48 2018 $12.25 $12.56 $12.87 $13.19 $13.52 $13.86 $14.21 $14.56 $14.93 $15.30 $15.68 $16.07 $16,47 $16.89 $17.31 $17.74 $18.19 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 Change in Maya Total Price Revenue 2.5% 2.5% SO 2.5% $78,524 2.5% $429,059 2.5% $803,290 2.5% $560,499 2.5% $580,141 2.5% $594,310 2.5% 5608,833 2.5% $623,720 2.5% $638,978 2.5% $654,618 2.5% 5670,649 2.5% $687,081 2.5% $703,924 2.5% $721,187 2.5% $738,882 0.0% $757,020 0.0% $758,224 0.0% $759,457 0.0% $760,722 0.0% $762,018 0.0% $763,347 Cash Available for Debt Service (CADS) ($80,007) (5610,492) ($820,154) ($139,352) $243,952 $383,869 $374,482 $351,470 $383,135 $379,409 $415,819 $416,376 $417,733 $364,040 $353,700 $359,505 $367,531 $309,595 $341,704 $373,643 $365,851 $366,964 $312,682 Total Debt Outstanding SO $1,000,000 $1,024,299 $1,242,981 $1,450,000 $1,411,120 $1,372,240 $1,333,360 $1,268,892 $1,205,447 $1,103,295 $992,187 $864,195 $768,166 $680,692 $576,861 $456,838 $408,576 $354,212 $256,355 $136,753 $75,000 $75,000 SO $935,950 (563,079) $113,580 $85,113 ($157,629) (5154,472) ($151,315) (5171,563) ($165,270) ($195,423) ($195,059) (5201,103) ($161,187) ($145,382) ($153,095) ($159,037) ($83,154) (584,614) ($119,749) ($131,281) (568,159) (6,405) Debt Equity Service Cash Coverage Flors Ratio ($79,035) ($1,986) ($550,148) $1,576 $185,047 $227,819 2.44 $221,589 2.42 $190,031 2.32 $214,719 2.23 $199,063 2.30 $220,578 2.13 $218,294 2.13 $236,588 2.08 $210,755 2.26 $204,461 2.43 $203,439 2.35 $246,435 2.31 $225,711 3.72 $239,522 4.04 $248,128 3.12 $266,131 2.79 $329,682 5.38 $306,277 48.82 28 1998 $12.87 2.5% $78,524 ($820,154) $1,024,299 (563,079) ($550,148) 29 1999 $13.19 2.5% $429,059 ($139,352) $1,242,981 $113,580 $1,576 30 2000 $13.52 2.5% $803,290 $243,952 $1,450,000 $85,113 $185,047 31 2001 $13.86 2.5% $560,499 $383,869 $1,411,120 ($157,629) $227,819 2.44 32 2002 $14.21 2.5% $580,141 $374,482 $1,372,240 ($154,472) $221,589 2.42 33 2003 $14.56 2.5% $594,310 $351,470 $1,333,360 ($151,315) $190,031 2.32 34 2004 $14.93 2.5% $608,833 $383,135 $1,268,892 ($171,563) $214,719 2.23 35 2005 $15.30 2.5% $623,720 $379,409 $1,205,447 ($165,270) $199,063 2.30 36 2006 $15.68 2.5% $638,978 $415,819 $1,103,295 ($195,423) $220,578 2.13 37 2007 $16.07 2.5% $654,618 $416,376 $992,187 ($195,059) $218,294 2.13 38 2008 $16.47 2.5% $670,649 $417,733 $864,195 (S201,103) $236,588 2.08 39 2009 $16.89 2.5% $687,081 $364,040 $768,166 ($161,187) $210,755 2.26 40 2010 $17.31 2.5% $703,924 $353,700 $680,692 ($145,382) $204,461 2.43 41 2011 $17.74 2.5% $721,187 $359,505 $576,861 ($153,095) $203,439 2.35 42 2012 $18.19 2.5% $738,882 $367,531 $456,838 ($159,037) $246,435 2.31 43 2013 $18.64 0.0% $757,020 $309,595 $408,576 ($83,154) $225,711 3.72 44 2014 $18.64 0.0% $758,224 $341,704 $354,212 ($84,614) $239,522 4.04 45 2015 $18.64 0.0% $759,457 $373,643 $256,355 ($119,749) $248,128 3.12 46 2016 $18.64 0.0% $760,722 $365,851 $136,753 ($131,281) $266,131 2.79 47 2017 $18.64 0.0% $762,018 $366,964 $75,000 (568,159) $329,682 5.38 48 2018 $18.64 0.0% $763,347 $312,682 $75,000 ($6,405) $306,277 48.82 49 2019 $18.64 0.0% $764,708 $293,660 $75,000 ($6,405) $287,255 45.85 50 2020 $18.64 0.0% $766,104 $264,839 $75,000 ($6,405) $258,434 41.35 51 2021 $18.64 0.0% $767,535 $281,934 $75,000 ($6,405) $241,232 44.02 52 2022 $18.64 0.0% $769,001 $276,305 SO ($75,000) $201,306 3.68 53 2023 $18.64 0.0% $770,504 $278,150 SO $278,150 54 2024 $18.64 0.0% $772,045 $273,514 SO $273,514 55 2025 $18.64 0.0% $773,624 $274,138 SO $274,138 56 2026 $18.64 0.0% $775,243 $263,068 SO $263,068 57 2027 $18.64 0.0% $776,902 $262,329 SO $262,329 58 2028 $18.64 0.0% $778,603 $260,484 SO $260,484 59 2029 $18.64 0.0% $780,346 $250,113 SO $250,113 60 2030 $18.64 0.0% $782,133 $234,648 SO $234,648 61 2031 $18.64 0.0% $783,964 $238,181 SO $238,181 62 2032 $18.64 0.0% $785,842 $231,118 SO $231,118 63 2033 $18.64 0.0% $787,766 $229,576 SO $229,576 64 2034 $18.64 0.0% $789,738 $215,770 SO $215,770 65 66 67 Note: This simplified version of the Petrozuata project's economics is designed to accompany Petrolera Zuata, Petrozuata C.A., HBS No. 299-012. Although the have been made to 68 model is based on the actual model used, a number of changes have been made to facilitate the analysis. 69 70 Model Output Minimum Debt Service Coverage Ratio (DSCR) Year of Minimum DSCR Average DSCR Internal Rate of Return Net Present Value 2.08 2008 10.46 25.1% $267,607 IRR and Minimum DSCR Output Table IRR as a Function of the Number of Years of Cash Flow Leverage IRR Min. DSCR Number of Years With Cash Flow IRR ) 1 2 3 4 40% 45% 50% 55% 60% 65% 70% 18.4% 19.5% 21.0% 22.8% 25.1% 28.2% 32.5% 39.0% 49.0% 3.05 2.73 2.47 2.25 2.08 1.93 1.80 1.69 1.59 5 10 15 20 25 30 34 15.9% 22.7% 24.3% 24.9% 25.0% 25.0% 25.1% 75% 5 7 80% 3 2 1
