By Josephine Shillito
LONDON, March 15 (PFI Energy Finance Briefing) - Major
European oil companies are increasingly offering corporate
financing to small- and mid-cap oil producers, using the loans
to effectively lock up supplies of crude.
Sources say oil giants like BP, Glencore and Vitol have
filled the void left by eurozone commercial banks, which have
pulled back from lending due to the debt crisis and new capital
While advancing capital in exchange for production volumes
is nothing new in the energy sector, the majors are said to have
become more aggressive of late, as the civil war in Libya and
the threat of a conflict over Iran have roiled the supply chain
and driven up prices.
Sources say the oil majors are specifically targeting light
sweet crude, and are coming on board early in a project's
development with the smaller companies, many of which have been
struggling to obtain direct lending from banks.
"What we are seeing is a change in timing. Oil majors are
offering capital pre-production, and sometimes even
pre-drilling, because they have the technical expertise on board
to assess the exploration and production risk," one source said.
"Most importantly, a knowledge of both the physical and
paper markets allows them to correctly price this risk."
One recent example was a $50m 23-month unsecured corporate
facility between Nigeria-focused oil independent Afren and the
Azerbaijani state oil company Socar.
The facility, which pays Libor plus 450bp, was agreed as
part of Socar's deal as offtaker for Afren's light sweet crude
production from the Ebok field in Nigeria. The agreement was
signed in March 2011, before the Ebok field began production.
In January 2010, BP procured US$20m of financing from a
commercial bank for North Sea-focused independent Xcite Energy,
as part of a supply and offtake agreement with BP Oil
As in the Xcite deal, commercial banks are often involved as
lenders to the oil major in pre-export, pre-payment or prepaid
forward financing. A bank lends money to a major, which the
major then lends to an independent oil company, to be repaid in
This reduces the bank's risk of lending directly to the
independent oil company. Societe Generale, Credit Agricole and
ING are mentioned as banks active in this area in Africa.
The growing trend of independent oil companies being the
first movers in exploration and production means that the
smaller companies are often sitting on light sweet crude
reserves - particularly in resource-rich West African countries
such as Nigeria, where BP has no operations save a
recently-opened trading office.
BP is said to have a specific budget for securing offtake
volumes of light sweet crude over the coming year, and is
willing to offer corporate finance at an early stage of the
project to achieve this, sources say. The company declined to
Demand for light sweet crude is so strong that non-European
banks with oil marketing arms are also looking to lend at an
earlier stage of the project in exchange for volume, sources
Standard Bank and JP Morgan, which is opening a full office
in Lagos this year, are two names mentioned.