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 multimillion projects. The project is labeled by world expects to be one of the most successfully executed within the Sub-Saharan African region. SISIL oil used a portion of their proved developed reserves, with an estimated total value of $100m, 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 project’s variable cost is estimated at $14m with corresponding annual fixed costs of $16m per annum for the first phase.

i) Identify the type of upstream funding that SISIL oil is seeking from Trust Solutions Commercial Bank

(2 marks)

ii) Based on the above estimates, establish the viability of the project, assuming that all cash flows occur at annual intervals and that Green Oil has a cost of capital of 15%. (3 marks)

iii) 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. A careful examination of the accounts payable related to the project reveals that SISIL oil has an outstanding amount of $2.5m yet to be paid. (2 marks)

  iv) 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 3

• The aggregate amount of facility outstanding, taking into account all account payments made on that date. Assume that Green Oil has an outstanding facility of $5m at this particular date. However, an investigation before the due date indicates that SISIL had paid $2.5m which has not been accounted for and therefore requires adjustment. (3 marks)

v) 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. (2 marks)

Note: You are required to interpret your results at each point.

b) The management of SISIL Oil (Which is an integrated oil company) is considering investing in the upstream sector in certain countries within the global oil industry. The project is estimated to cover exploration and evaluation, development, production and a careful decommissioning process. The firm plans to adopt the use of successful efforts accounting method rather than full cost accounting method, as has been their tradition. The countries under consideration are Six (6), namely; Iran, Venezuela, Qatar, Norway, Kazakhstan, Libya (See Figure 1 and Table 1 for the global risk profile of the top 20 oil-producing nations). You are a consultant in Trust Commercial bank and SISIL oils is soliciting your expert advice on the way forward.

You are required to: Advise SISIL oil on the possible prospects and perhaps otherwise (ramifications) and why they should pursue a particular cause of action or not, regarding each of the selected countries