Reserved Base Lending Coverage Ratios (RBLCRs)

RBLCRs can also be employed in a midstream and downstream context:

Illustration

Question 1

SISIL oil has a present project to execute, thus investing in a newly proved developed oil field, which could yield total revenue of $240m per annum for the first 4 years of the multi-million projects. The project is labeled by world expects to be one of the most successful executed within the Sub-Saharan African region. SISIL oil used a number of their 1P and 2P reserves, with an estimated total value of $100m at a ratio of 10:1, some development assets with an estimated total value of $110m and other assets at the production phase with an estimated value of $40m as collateral for the loan. The purpose of the loan facility is to cover capital expenditure, operating expenditure and the development costs of the project. The project is in phases and spans successful exploration through to production and decommissioning. SISIL Oil has approached Trust Solutions Commercial Bank for a loan facility of $200m initial capital to cover the first phase of the project (spanning 4 years). The project involves the purchase of drilling equipment at the beginning, which will have a residual value of $24m at the end of the first phase. The project has another one-time inflow of 10m on the third year, which SISIL oil experts to boost their cashflows. The projects variable cost is estimated at $140m with corresponding annual fixed costs of $16m per annum for the first phase.

1. Identify the type of upstream funding that SISIL oil is seeking. 2 marks
2. Based on the above estimates, establish the viability of the project, assuming that all cash flows occur at annual intervals and that SISIL Oil has a cost of capital of 15%.

3 marks

Lecturer: Dr Emmanuel Asare (2018)

(Inkpen and Moffett, 2011; Dahl, 2015; BPP, 2018)

1. Calculate the Loan life cover ratio (LLCR), which is given by;

• The NPV of projected net cash flows for each period during the period commencing on the relevant test date until the final maturity date of the loan(s); to
• The aggregate amount of facility outstanding, taking into account all account payments made on that date.

Assuming the aggregate amount of facility outstanding is $8m, taking into account all account payments made till that date.

2 marks

1. Calculate the Project life cover ratio (PLCR). The PLCR is given by:

• The NPV of projected net cash flow for each period during the period commencing on the relevant test date and ending on the date on which field costs are equals the revenues, beyond which the costs will be greater than revenues; to
• The aggregate amount of facility outstanding, taking into account all account payments made on that date.

Assume that Green Oil has no outstanding facility at this particular date. 3 marks

e) Calculate the third year Debt service cover ratio (DSCR), also a common feature on midstream and downstream projects. The DSCR is given by:

• Cash Available for Debt Service (CAFDS) in respect of a particular period; to
• Debt Service (DS) falling due in such period.
• Assume CAFDS at this point is $250m and (DS) falling due is $100m, the discount factor still remains 15%. 2 marks