Unlocking Upstream Financing for Africa’s Oil Sector Development

1. Unlocking Upstream Financing for Africa’s Oil Sector Development UNCTAD Conference, Nairobi, June 23rd, 2007 NOT AN OFFICIAL UNCTAD RECORD

2. AGENDA • Africa is a growth relay for the oil & gas sector • A strong need to unlock financing in a difficult environment • New and adequate financing techniques for independent E&Ps • Accompanying the oil sector growth in Africa and developing local content.

3. AFRICA IS A KEY CONTINENT IN TERMS OF RESERVES POTENTIAL AND DISCOVERIES • Africa’s reserves currently represent near 10% of the Worldwide reserves, i.e. approx. 105 billion barrels, but rate of new oil reserves discoveries in Africa has been the fastest in the world in the past decade, leading to a growing importance of Africa in the worldwide reserves. • Africa’s oil is also a growing part of USA’s oil importations. Sub-Saharan Africa is said to represent 25% of North American oil imports by 2015 compared to approx. 15% at present. • Africa produced over 9 million bpd of oil in 2005. 16 countries are currently producing and prospects are high in at least another 5 countries.

4. AFRICA BENEFITS FROM SIGNIFICANT STRENGTHS • Mostly light crude oil with low sulfur tenor • Sizeable oil & gas fields • Geographical location (open to Europe and USA) • Low costs of production in numerous countries (in particular on onshore and shallow water concessions accessible to the independents). • Attractive fiscal terms in most countries for independents and local content companies • An oil & gas upstream sector opened to foreign partners

5. TRENDS IN WEST AFRICA • Majors are focusing their attention to large scale projects notably in the deepwater areas • Portfolio rationalization and disposal of marginal assets • Local capacity creation within the indigenous private sector • The high price of oil allows lowered breakeven costs • Progress in term of technique also allows more “aggressive” exploration • New emerging small E&P companies

6. TRENDS IN EAST AFRICA • The region is still largely under-explored • Geologists assess that there should be important oil discoveries thanks to the progress in the techniques of explorations • Onshore and offshore potential is opening the doors for Majors and independents companies • Countries like Uganda should start producing at a rate of 60,000 bpd of oil in 2008. • This part of the African continent to successfully reach a significant production level will require huge investments at all the stages of the oil and gas sector (exploration / production / oil services / infrastructures…)

7. AGENDA • Africa is a growth relay for the oil & gas sector • A strong need to unlock financing in a difficult environment • New and adequate financing techniques for independent E&Ps • Accompanying the oil sector growth in Africa and developing local content.

8. A DIFFICULT AFRICAN ENVIRONMENT • African countries are almost all rated as speculative grade, when rated. • The legal environment can be constraining and companies / Banks have to face and adapt to various type of legal framework • Political uncertainties • Modern and expensive equipment is required for E&P in difficult areas (deep and ultra deep-water)

9. PROBLEMATICS FOR INDEPENDENT OIL PRODUCERS IN AFRICA • Buying assets through tenders or direct negotiations • Buying companies owning producing assets or licenses • Establishing a JV with local partners • Managing independence • Farming in / Farming out with Independents and/or Big names • Finding relevant partners • Choosing appropriate contractors at an effective cost rate & time schedule • Financing exploration, development and acquisitions

10. AGENDA • Africa is a growth relay for the oil & gas sector • A strong need to unlock financing in a difficult environment • New and adequate financing techniques for independent E&Ps • Accompanying the oil sector growth in Africa and developing local content.

11. EVOLVING FROM TRADITIONAL CORPORATE AND PRE-EXPORT FINANCE Historically designed for large E&Ps, traditional financing techniques are not relevant for smaller / independent E&Ps • Corporate Financing: • Not relevant for independents characterized by limited Balance Sheets and P&L accounts and no credit rating • Traditional corporate banks are often not comfortable with emerging countries. • Pre-Export Financing: • Based only on the exported portion of existing production • Small production: facility insufficient to fund asset development • Lack of flexibility

12. POTENTIAL ALTERNATIVES • Project Finance • Quality of the Sponsor • Lack of flexibility • Development risk (full asset development) • New Equity • Cost • Dilution of existing shareholders • Time schedule Need for an adequate financing tool for independent producers

13. DEVELOPMENT EXPLORATION AFTER FIRST OIL BEFORE FIRST OIL FINANCING TOOLS AND PROJECT PHASING • High risk-High reward • Investors’ role • Development risk • Investors’/banks’role • Operational risk • Banks’ role IPO/equity Farm-Out Pre first Oil RBL PRIVATE PLACEMENT / PARTNERSHIP RESERVE BASED LENDING BRIDGE FINANCING

14. RESERVE BASED LENDING: AN ADAPTED TOOL • Financing Based on cash flows deriving from the development of the reserves, not corporate risk analysis • Detailed and recurrent technical due diligence on the financed oil & gas assets • A borrowing base approach evolving in line with development of reserves and production level • Strong structure allowing to accommodate country risk and even limited asset portfolios • Tailored to the financing needs and company development from a single asset to multi-asset, multi country portfolio • Various facility types depending on the purpose: Senior Debt, Stretched Facility, Junior/Mezzanine Debt • Flexibility in balancing contributions from equity holders and debt providers

15. DIVERSIFIED RBL TYPE FACILITIES TO ADRESS VARIOUS FINANCING NEEDS • BRIDGE • Facility: Amount fixed on a case by case basis • Purpose: To finance acquisitions or licenses purchase • Tenor: Short-term, until repaid by Senior facility • SENIOR RBL FACILITY • Facility: Fully revolving credit facility • Borrowing Base: Based on Proved Reserves + a portion of Probable in certain cases • Purpose: To finance development and production on the existing reserve base, working capital and eventually acquisition • Tenor: Medium-term (5years & more) • Collateral: Charge on interests in oil & gas properties and major contracts • Collection Account : Domiciliation of revenues at the banking agent’s counters • Amortization: According to cash flow ratios

16. DIVERSIFIED RBL TYPE FACILITIES TO ADRESS VARIOUS FINANCING NEEDS • STRETCH Identical to the Senior Facility, except: • Amount: additional amount based on stretched CF ratios • Purpose: Development of the existing reserve base and acquisition • Amortization: According to cash flow ratios (less restrictive than senior tranche) • MEZZANINE Facility: Amount fixed on a case by case basis (subordinated credit facility) • Purpose: Acquisition • Tenor: Senior facility Tenor + 1 day • Amortization: Bullet

17. AGENDA • Africa is a growth relay for the oil & gas sector • A strong need to unlock financing in a difficult environment • New and adequate financing techniques for independent E&Ps • Accompanying the oil sector growth in Africa and developing local content.

18. BANKS NEED TO ADAPT TO CURRENT MARKET TRENDS AND PROVIDE COMPREHENSIVE SOLUTIONS • The market is currently consolidating, more and more clients request Banks to provide acquisition financings needs as well as innovative solutions for the development of their oil & gas assets. • Banks have to evolve to provide comprehensive solutions and to be involved in the life E&P projects: • Equity raising manager and/or participator • Acquisition financing • Financing of pre-first oil facilities • Financing of the local oil services sector which is a key necessity for the development of the independents E&P assets

19. A NEED TO EXPAND FINANCING FROM E&P TO OIL SERVICE AND OTHER SUPPORT ACTIVITIES • The E&P sector will not grow and thrive without the simultaneous growth of the associated related oil sector: mainly the infrastructure and the oil services sectors • Such development will not be possible without the strong implication of the local actors • The oil services sector through the lack of availability of equipment for the independent is opening the door for the development of the local content oil companies • Promoting the local content is becoming one of the key elements to ensure a further development of the African continent oil & gas industry

20. DEVELOPING LOCAL CONTENT • Africa needs to effectively exploit its vast natural resources and with the support of the international finance community’s active participation. • Certain countries like Nigeria are trying hard to develop local skills through the transfer of technologies • Local content bill (45% of local content in the oil sector by 2008) • Creation of the Nigerian Content Support fund (local oil groups working as subcontractors) • A new market opportunity for banks, willing to provide innovative structured financing based for example on: • Assignment of oil services contracts • Pledge on assets • Pledge on receivables / fares / revenues

21. CONCLUSION • Natixis is dedicated to provide its clients with all its experience and knowledge in: • Introduction to reliable professionals and partners • Technical and advising • From debt to equity financing • Financing development and acquisition

22. THANK YOU • Michel JAY Structured Finance & Natural Resources Global Head of Upstream & Commodity Structured Finance Energy e-mail: michel.jay@natixis.fr phone: + 33 (0) 1 58 19 94 44 • Laure PIRONNEAU Head of Africa & Middle-East Upstream & commodity structured Finance Energye-mail: laure.pironneau@natixis.fr phone: + 33 (0) 1 58 19 28 79