Steps for Accessing  Capital for E & P Projects in Africa

Raising capital for E & P projects has always been one of the daunting challenges for operators in Africa.  Inability to raise capital is one of the most crucial militating factors in the development of both large and marginal assets.  There are many sources of funding, Damien Mauvais, Managing Director  and Head, Oil & Gas Investment Banking, Standard Bank  London, said . A challenging start and main key for operators to receive funding is offering the right risk and reward to providers of capital. According to Mauvais, there are multiple sources of capital available to the right equity and debt story.

Sources of funding include the following:

  • Equity:  The pros are that there are no cash cost and there’s flexible use of proceed. The cons are dilution and control.

  • Asset Deal/Farm out:  The pros are limits appraisal and development risk, potential for carry and it also aids technical and financial expertise, the demerits include dilution of interest prior to value realization and control.

  • Hybrid/Mezzanine: This is funding beyond traditional debt capacity and brings better shareholders equity. Argument against this source of funding is the cost and potential impact on ability to raise senior debt.

It has been identified that putting the right story to capital providers is essential in order to attract funding.

It entails:

 

A Clear Strategy:  Operators seeking for funding must create and show well defined route to production and also part of a wider growth strategy.

The Right Team:Operators must show track record of value creation How they intend to do it or whether they have done it before.

 

  • Show Progress:  It is necessary to show consistent progress toward production. Don’t over promise or under deliver.

  • Be Able to Demonstrate Asset Value:  Operators must provide access to good data and get concrete opinion from credible third party.

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  • Well Identified Upside:  The plan presented must be organic – having room for further development and possibility for acquisition.

On sharing his thoughts on accessing capital for the development of marginal fields in Africa, Damien Mauvais of Standard Bank London, further submitted that it is good to start engaging capital providers early and operators  should do proper home work and be prepared. If necessary hire an advisor and should have it at the back of their mind that you never raise too much equity

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