The Chad-Cameroon

Petroleum
Development and
Pipeline Project(A)
Oil
discovered in
Chad by a
consortium of
oil companies
Development
suspended due
to civil unrest
MOU signed
b/w
Consortium
& the two
countries
(Chad &
Cameroon)
Shell & Elf
dropped out of
consortium
Early
1970s
1979
February
1996
November
1999
Initial Consortium: Conoco, Chevron, Exxon,
Royal Dutch/Shell
Final Consortium: ExxonMobil (40% stake),
Petronas (35% stake), Chevron (25% stake)
Project Timeline
Chad-Cameroon
Petroleum
Development &
Pipeline Project
Field System
Owner: Upstream
Consortium
Corporate Finance
Export System
TOTCO COTCO
Project Finance/
SPVs
Project Structure
Evaluation of Project Financing Plan
Scenario 1: Corporate finance
with Exxon as the sole owner
Scenario 2: Corporate finance
with Exxon, Petronas and Chevron
as the private sponsors
Scenario 4: Project finance with
Exxon, Petronas and Chevron as
private owners, for both field
operations and export
Scenario 3: Corporate finance
with Exxon, Petronas and
Chevron as private owners, for
field operations, and project
finance with special purpose
companies and govt of Chad and
Cameroon having minority stake
Exxon Chevron Petronas
Additional Equity issued 1,147 878 469
Additional debt issued 343 426 462
Exxon Chevron Petronas
Total Equity Investment (CF+PF) 883 772 551
Total Debt Investment in Project 560 490 350
Exxon Chevron Petronas
Equity Investment (PF) 883 772 551
Debt Investment (PF) 560 490 350
Exxon
Additional equity issued for Exxon 2,867
Additional debt taken on Exxon's balance sheet 857
Evaluation of Project Financing Plan
Funding with only corporate finance with one or more than one private owner/sponsor
As can be seen from the various investment scenarios, using only corporate finance will add to both debt and equity
on the balance sheet of private sponsors. Looking at socio-political risks involved, this is not a feasible approach and
will entail greater investment as compared to the other two options
Funding with project finance used to cover a part of funding
Project finance can be used as a feasible method for mitigating socio-political risks and securing participating
from commercial banks

It helped Exxon in stake reduction thus minimizing its value at risk in case of catastrophic events

It was also a way to involve multiple stakeholders in the project this aided in deterrence. While the upstream
consortium funded 85% of the cost of export system rest was provided by Chad and Cameroon governments,
with a loan from IBRD. This ensured participation from these governments by making them liable to a
strategically significant lender
Hence, it can be seen that cases of only corporate funding seems unfeasible due to significant risks involved.
The other scenarios involving project finance emerge as the only feasible options however, only project
funding has issues related to greater structuring time involved, along with higher costs as a separate entity is
created. This could decrease the confidence of commercial lenders hence, a hybrid structure with both
corporate and project finance should be the most preferred scenario
World Banks Role
World bank has a unique status in the developing world, particularly
in its role as a development lender. Potential source of funds in
places like Chad and Cameroon

World bank was critical in moving financing arrangements forward
and attracting other participants to the project

Its participating also brought legitimacy and expertise which
encouraged the ECA to fund a major portion of the project debt
Project Risk and Returns among
various stakeholders
Risk & Return: Chad
Risks
High risk of adverse
environmental impact
Re-allocation of indigenous
population
Extraction of oil can not
guarantee development. In
fact, It may slow down
development
Returns
$1.8 Billion dollars of
cash flows in the form of
income taxes, royalties
and dividends
$25 million payment from
Chevron & PETRONAS, a
payment for tax benefits
received
Risk & Return:
Cameroon
Risks
Serious risks: Deforestation &
oil spills
Chances of ground water
contamination
Environmental risk to national
reserves
No provision or step to solve
future social issues
Returns
Returns would be function
of pipeline volume
Risk & Return:
Private Sponsors
Political Risk
Chad is a war ridden country
with high political instability
Cameroon ranked 99 out of
99 countries in terms of
corruption according to
Transparency International
Probability of failure to
complete
High financial risk
Losses in case of under
production and low prices of
Brent oil
High NPV if the project is
executed

PERT Distribution of NPV for Chad ,
Cameroon & Private Sponsors

PERT Distribution of NPV
Price 12.00 $ /bbl Price 18.50 $ /bbl
Chad Cameroon Private Sponsors Chad Cameroon Private Sponsors
a 108.00 $ 92.00 $ (917.00) $ a 330.00 $ 101.00 $ 235.00 $
b 337.00 $ 162.00 $ 198.00 $ b 1,170.00 $ 156.00 $ 1,614.00 $
m 271.00 $ 148.00 $ (98.00) $ m 822.00 $ 141.00 $ 1,361.00 $
E 287.83 $ 148.00 $ (37.17) $ E 972.00 $ 144.33 $ 1,342.00 $
sigma 38.17 $ 11.67 $ 185.83 $ sigma 140.00 $ 9.17 $ 229.83 $
Price 15.25 $ /bbl PERT Distribution of Oil Prices
Chad Cameroon Private Sponsors
a 205.00 $ 104.00 $ (344.00) $ a 12.00 $
b 603.00 $ 158.00 $ 1,045.00 $ b 18.50 $
m 463.00 $ 144.00 $ 706.00 $ m 15.25 $
E 513.33 $ 146.67 $ 757.00 $ Mean 15.25 $
sigma 66.33 $ 9.00 $ 231.50 $
Year
Private Sponsors
Equity Chad Equity
Cameroon
Equity
1,535.08 $ 34.45 $ 52.09 $
2000 21.82 $ 8.18 $ 11.82 $
2001 246.28 $ 4.96 $ 8.26 $
2002 459.05 $ 6.76 $ 11.27 $
2003 381.80 $ 5.46 $ 9.56 $
2004 253.96 $ 6.83 $ 11.18 $
2005 172.16 $ 2.26 $ - $
2006 - $ - $ - $
2007 - $ - $ - $
2008 - $ - $ - $
2009 - $ - $ - $
2010 - $ - $ - $
2011 - $ - $ - $
2012 - $ - $ - $
2013 - $ - $ - $
2014 - $ - $ - $
2015 - $ - $ - $
2016 - $ - $ - $
2017 - $ - $ - $
2018 - $ - $ - $
2019 - $ - $ - $
2020 - $ - $ - $
2021 - $ - $ - $
2022 - $ - $ - $
2023 - $ - $ - $
2024 - $ - $ - $
2025 - $ - $ - $
2026 - $ - $ - $
2027 - $ - $ - $
Year
Chad Cameroon Private Sponsors
FV 7,179.16 $ 2,877.09 $ 31,332.17 $
2000 - $ - $ - $
2001 - $ - $ - $
2002 - $ - $ - $
2003 - $ - $ - $
2004 277.58 $ 259.67 $ 1,656.55 $
2005 651.22 $ 423.29 $ 3,125.87 $
2006 651.22 $ 362.61 $ 4,343.95 $
2007 645.84 $ 322.92 $ 4,453.60 $
2008 611.59 $ 293.56 $ 4,323.95 $
2009 694.99 $ 261.32 $ 4,014.26 $
2010 555.99 $ 252.72 $ 2,901.27 $
2011 399.76 $ 192.99 $ 2,017.19 $
2012 271.52 $ 142.03 $ 1,294.95 $
2013 205.06 $ 110.13 $ 918.99 $
2014 410.82 $ 62.14 $ 500.58 $
2015 367.20 $ 40.80 $ 370.33 $
2016 302.43 $ 31.38 $ 305.28 $
2017 256.78 $ 25.94 $ 267.16 $
2018 169.77 $ 21.22 $ 172.13 $
2019 167.20 $ 17.15 $ 169.34 $
2020 128.62 $ 13.64 $ 128.62 $
2021 104.52 $ 10.63 $ 102.75 $
2022 85.36 $ 8.05 $ 83.75 $
2023 68.81 $ 7.32 $ 65.88 $
2024 54.57 $ 5.32 $ 50.58 $
2025 47.19 $ 4.84 $ 36.30 $
2026 34.10 $ 4.40 $ 20.90 $
2027 17.00 $ 3.00 $ 8.00 $
Returns
Modified IRR
Chad Cameroon Private Sponsors
Value of investments (Year 1999 end) 34.45 $ 52.09 $ 1,535.08 $
Value of Returns (Year 2027 end) 7,179.16 $ 2,877.09 $ 31,332.17 $
Modified IRR 21.0% 15.4% 11.4%
The deal is fair for all the three parties as Chad is gaining a large revenue (50% the size of its GDP) with a
low share of investment.
Although it involves grave environmental concerns for both the countries but involvement of companies
like ExxonMobil will ensure minimal damage as these companies are highly concerned about their image
Revenue Management Plan (RMP)
Aim: To direct the oil revenues towards economic development rather
than economic distortion and corruption -> Facilitated through World
Bank intervention
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16% taxes
Spending based on government
discretion general
development purposes
84% royalties and dividends
Deposited in Special Petroleum
Revenue Account
10% - Foreign financial
institutions (Poverty Reduction)
76.5% - Chadian commercial
banks (Development in high-
priority sectors)
13.5% - Government budget
and programs in Doba region
RMP Monitoring
World Bank and Chad approve a detailed annual expenditure program
Expenditure program reviewed by oversight committee
Oversight
Committee (9
members)
7 members from
Government
2 from Civil
Society (1 NGO,
1 Trade Union)
Committee term 3 to 5 years
Annual review of operations
subject to external audit
Full monitoring of program by World Bank
Implementation of RMP made contractual obligation under the sanctioned loans
Governments performance under RMP linked to future lending
1998 Initial efforts by Chad Government Provisions for Oversight
Committee, privatized 45 of 50 state-owned enterprises, cut army
size by half reallocated public expenditure to increase development
RMP Criticisms
Lack of clarity in
legal terms vague
and ambiguous
detailing
Details only broad
categories of
expenditure, not
specific
Government could
change revenue
allocation every 5
years
Weak composition
of oversight
committee only 2
outsiders
Details on decision
making, authority
and voting power
unclear
Threatens
sovereignty of
undemocratic rulers
Would possibly
result in corporate
welfare over public
welfare
RMP Proposed Changes
Concern Area Proposed
Oversight Committee
Composition
Increase representation of external parties 4 members including one
from World Bank
Authority, Voting and veto powers to be clearly defined in contract
Priority Sector List List definition to be made more exhaustive with specifics on mandatory
allocation based on sector and region
Percentage allocations to be elucidated for specific sectors
Revenue Allocation Reduce periodicity of revenue allocation
Can change allocation only every 10 years (current: 5 years)
Stricter Penalties World Bank to become stronger in its stand if compliance to RMP is not
followed by Chad
Complete withdrawal of support/funds and total exit from project to be
brought in as contractual clauses
Tackling Direct and
Indirect Revenues
Special clause for cases when oil prices increased as a result of which
indirect revenues grow faster than direct revenues
50% of excess oil revenue (direct and indirect) to mandatorily go into a
stabilization account