Debt Liquidity Management Petroleum Trading Companies S2 15.00 - John Paul... · Debt Liquidity...
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Transcript of Debt Liquidity Management Petroleum Trading Companies S2 15.00 - John Paul... · Debt Liquidity...
AN INTRODUCTION TO SAHARA ENERGY RESOURCE LTD
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Volumes in millions of metric tons oil equivalent (MMTOE) 2014 Products percentage split (in MMTOE)
CAGR 2009 to 2014: 22.1%
Key facts
Established 1996
Revenue 2014 $12.8 billion
Volumes 2014 109.4 million barrels
Number of banks 26
Credit line capacity $4.2 billion
Employees >150
Products Crude oil, naphtha, gasoline, gasoil,
Traded jet fuel, fuel oil, biofuel, bitumen & LPG
LOCAL KNOWLEDGE COUPLED WITH AN INTERNATIONAL PRESENCE
Singapore
Geneva, Switzerland
Dubai, UAE
Douglas, Isle of Man
HQ
Abuja, Nigeria
Abidjan, Ivory Coast
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Geneva
(Trading & Centralized Risk Management)
Douglas
Isle of Man (Administrative)
Abuja, Nigeria
(Business Development)
Abidjan, Ivory Coast
(Logistical Support)
Dubai, UAE
(Trading & Business Development)
Singapore
(Trading & Business Development)
CRUDE OIL: AN IMBALANCED MARKET
Supply and demand are geographically mismatched
Source: BP statistical Review of World Energy, published in June 2014 4
CHALLENGING LOGISTICS
LPG (Butane & Propane) Light gasoline (naphtha) Heavy gasoline (super) Kerosene Gasoil-Diesel
Heating Oil
Heavy Fuels Bitumen
Crude Oil
boiler
Different crude oil grades do not necessarily match the requirements of local refineries
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THE KEY ROLE PLAYED BY COMMODITY TRADERS
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The trader superintends the processing, storage and transport of commodities
And finds the best logistic solutions for shipping the commodities
Geographic arbitrage
• Commodities are shipped from production zones to consumption zones
• Balancing zones with surplus amounts of a particular commodity with zones having a deficit in that commodity
Quality & processing transactions
• Finding and shipping the qualities of crude that are compatible with the refineries configuration
• Processing commodities, via blending of various grades of petroleum products to meet the needs of specific markets
• Routing merchandise of a quality suited to each market in accordance with the current standards and legislation
Storage transactions
• Maintaining inventories at strategic locations
• Supplying, where required, the markets which consume the various commodities
• Contango trades when the forward price curve pays the trader to store commodities when the current supply of a commodity is greater than its demand
SOURCE
Off-take agreements with major points of
supply
Risk management, finance and marketing services
STORE
Storage at owned and leased facilities
Strategically located terminals and warehouses
BLEND
Commodities blended to regional, market
and customer specifications
DELIVER
Efficient, safe and high quality logistics
Vessel, truck, rail, pipeline and barge operations globally
THE MANY PARAMETERS OF PETROLEUM TRADING
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Negotiating the transaction
Product quality Delivery terms Incoterms Price formula Credit terms Logistics
Managing the risk
Futures Swaps Physical forwards
Risk monitoring Absolute price Quality differentials Inter-products Calendar spread Freight
How ? Brokers Exchanges Electronic trading Over the counter
Watching for opportunities
In regular contact with customers Prices and forward curves Shipping availability Logistics optimization Timing Market intelligence News - weather
COMMODITY TRADE FINANCE – MARKET STRUCTURE
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Lender
Borrower Producer
Payer Off-taker
$ $
Producer Off-taker / end-
user Trader /
warehouse Processor
Goods
Purchase / Sale Contract
EXAMPLE BUY CRUDE + STORAGE + REFINED PRODUCT FINANCING FLOW
rki9
1) Lift 1.0 mln bbl cargo of crude Trader’s bank
issues L/C to Oil producer
Transit time 9 days
Transit time 14 days
Transit time 8 days
2) Offload 1.0 mln bbl cargo of crude Trader’s borrowing base finances the
storage
3) Trader sells a 1.0 mln bbl cargo of crude to a Indian
refinery, the refinery’s bank
issues an L/C to the Trader
4) Trader purchases 60K MT cargo of fuel oil from an Indian refinery
and sells it to an End user in Singapore who issues an L/C from its
bank to the Trader
EXAMPLE OF CONTAGO TRADE ARBITRAGE
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Contango trade: purchase for immediate delivery at $60 per bbl + storage 6 months = sell forward at $66 per bbl, Secure profit margin $4 per bbl = $6 per bbl + blend crude grades of $2 per bbl – storage costs of $4 per bbl
Buy for immediate deliver 1 cargo crude oil (hedge – sell Dec futures contract)
Sell for future deliver 1 cargo crude oil (hedge - buy Jun futures contract)
INGREDIENTS FOR A SUCCESSFUL DEAL – THE TRADER
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• Knowledgeable and influential in the trade
• Established relationship & track record with the produce / end-buyer
• Good shipping & trade finance team
• Robust and systematic risk management – hedge 100% of both flat price risk and basis risk
• Strong understanding of the end-buyers & utilisation
• Fungible commodity so alternative end-buyers available in case of need
• Acceptable collateral / security – such as assignment of receivables and or contracts, shipping docs, warehouse receipts, guarantees, insurance, charged accounts, claims on derivative hedges
• Reliable and honest
COMMODITY FINANCE –FINANCING TYPES
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The purpose of these financing types and techniques is to provide solutions for all those involved in the commodity supply chain (oil producers, traders, terminal operators, refineries and end users)
• All financing products bilateral trade finance lines, borrowing bases, revolving credit facilities, term loans, reserve based lending (RBL – oil field financing) and pre-export financing (PXF – oil production)
• Risk hedging funding of initial margin and variation margin (commodity price, currency & interest rate risk)
• Arbitrage solutions geared to their needs, particularly in the emerging markets
The range of financial product solutions stretches from
• Short-term transactional finance (< 1 year)
• Commodity finance for companies active in trading of physical commodities
• Self-liquidating financing finance acquisition of the product (L/C + financing + hedging + storage + credit risk/performance risk)
To the medium and long term structured finance (2 to 10 years)
• Provided to oil producers, storage/pipeline operators and refinery companies for their growth and development projects (asset based term lending)
• Spans the entire range of medium and long-term structured finance for the energy and commodities
sector
BANKS BEHIND THESE FINANCINGS
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From the historical perspective, commodity trading finance has largely been provided by European banks
• Which developed their expertise in transactional finance (in the 1970s)
• And applied this expertise to more structured types of financing (such as RBL…)
The North American banks play marginal role in this type of financing. Their focus has been on…
• Finance for the integrated oil majors on a corporate basis (ExxonMobil, Shell, BP, Total, Chevron, etc)
• Domestic US finance (fracking drillers/producers)
• Syndicates for structured transactions
The Asian and Middle Eastern banks historically focus on Intra-Asia/Intra-GCC financing for the needs of local clients but they are evolving quickly
Financing requirements are considerable (several billion each day)
Practically all of this financing is provided in USD