The Chad-Cameroon Petroleum

Development and Pipeline Project

Group 6
Bhavesh Agrawal PGP/22/242
Abhishek Modi PGP/22/244
Amaan Lulania PGP/22/261
Roshni Sambrani PGP/22/279
Vinisha Ayyappan PGP/22/410
Rishabh Sinha
PGP/22/158
Project History and Players
 In early 1970s, an oil companies’ consortium discovered oil in Chad
 By 1979, growing civil unrest forced the suspension of development of
the oil fields
 In Feb 1996, MOU was signed between Chad, Cameroon and a
reorganized consortium
 In Nov 1999, Elf and Shell dropped out of the consortium

ExxonMobil (40%) Petronas (35%) Chevron (25%)

• Global major player • Owned by Malaysian • U.S. based company

• AAA debt rating government involved in energy-
• Strong upstream • Currently operating 40 related activities
portfolio fields in 24 countries in • Specially active in
• Environmentally Asia and Africa Africa
oriented • 50% stake in
downstream operator
Caltex
Project Description

The
Project
($3.7 Bn)

Field System Export System

($1.5 Bn) ($2.2 Bn)
300 wells in 3 fields Construc tion of 1070 km long
Corporate financ e pipeline Projec t financ e
Upstream Consortium (J TOTC O and CO TC O
V)

EssoChad (ExxonMobil subsidiary) responsible for project coordination and

upstream operations
 Capital Structure
• The sponsors decided to use corporate finance for Field System and
Project Finance for the Export System.

Equity (62.4%) Debt (37.6%)

• Proposed structure included • Proposed structure included

$2.3 bn of equity $1.4 bn of debt
$2.2 $883 mn ExxonMobi $0.4
bn l bn Capital Market
(59.2 $772 mn Petronas (10.7 Bonds
s$551 mn Chevron %)
Private%Sp)
onsor $1.0 $100 mn IFC A- Loan
$0.1 $77 mn IBRD bn $300 mn IFC B- Loan
bn $42 mn EIB (10.7 $600 mn ECA Loans
(3.2%) %)
Chad and Cameroon govt. Other Agencies
(lent by EIB and IBRD)
Returns and Sensitivity Analysis
 Base calculation assumed 883 mn barrels of salable crude oil out of 917 mn
 Average price around $15 per barrel means total revenues of $13.7 bn across
the duration of the project
 Returns were mainly driven by oil prices and volume assumptions.
 World Bank’s technical staff and independent consultants confirmed that the
actual reserves could vary from 595 mn barrel of proven reserves to 1,038
mn proven, probable and possible reserves
 Price assumptions were based on Brent Crude prices which ranged from $9
to
 $42 per barrel over the last 18 years with an average price of $20 per barrel
Due to the acidic, corrosive nature of the Doba Basin oil, it was expected
that it will sell at a discount of 10%-20% below the Brent Crude.
 Despite the discount, the price well above the project’s finding and
development cost of $5.2 per barrel
 NPV ($US mn) Internal Rate of Return

Price Private Private

Chad Cameroon Chad Cameroon
Sponsors Sponsors
$12.00/bbl 108 92 -917 42% 34% <0%

595
bbl
mn
$15.25/bbl 205 104 -344 60% 35% <0%

$18.5/bbl 330 101 235 75% 35% 13%

$12.00/bbl 271 148 -98 56% 39% 9%

917
bbl
mn

$15.25/bbl 463 144 706 70% 39% 18%

$18.5/bbl 822 141 1361 84% 39% 25%

$12.00/bbl 337 162 198 60% 41% 12%

mn bbl
1038

$15.25/bbl 603 158 1045 75% 40% 21%

$18.5/bbl 1170 156 1614 90% 40% 27%

 Benefits
Chad
Many years of political instability had hampered Chad’s economic development. It was
one of the poorest and least developed nation in the world. Except for oil, the landlocked
country had a few natural resources and lacked even basic infrastructure needed for
development.
Infrastructure development

Poverty alleviation

Employment opportunities (80% of operations to be handled by trained locals)

Cameroon
Cameroon was still a poor nation, ranking 134 out of 174 countries on UN Development
index and 99 out of 99 in terms of corruption according to Transparency International
• Employment opportunities
NGO
• Poverty alleviation
•CoPnusbolicrtinu
i frmastorufcOtuirleCimop
 The environmental and social relations/image of the companies will improve by
mropvaenmieenst
providing the additional technical expertise
 Revenue and resources
World Bank’s involvement
 As Chad was a risky country to invest in, the sponsors and lenders wouldn’t invest
without some kind of protection against political risk
 Hence, the Sponsors considered including one or more multilateral development
agencies as partners in the deal.
 The World Bank was the logical choice because it had extensive lending and policy
experience with developing countries and had been working with the two countries for
many years.
 Without the International Finance Corporation (IFC)/World Bank‘s involvement, the Chad
Cameroon Pipeline Project would not have gotten off the ground.
 The senior management was intrigued with the proposal for mainly three reasons
 The project was viable and it would be Bank’s responsibility to ensure that the host countries
received returns in proportion to risks that they would bear
 The project could help jump start Chad’s listless economy
 Bank could play an important role in protecting the environment as well as indigenous
people
World Bank’s involvement
 The IFC provided a $100 million loan and up to $300 million in syndicated loans to
COTCO & TOTCO
 The IFC has been involved in catalyzing $900 million of financing from Export Credit
Agencies
 A $400 million bond issue from international capital markets
 They stated in their project documentation that commercial lenders have indicated their
unwillingness to proceed with the oil project without the Bank Group‘s involvement
 The world bank was involved in handling the revenue management program.
 Potential Risks if it chose not to participate:
 The sponsors might abandon project and look to invest in safer countries
 If the World Bank did not step in, the Chad government might develop the oil fields
with neighboring countries of Sudan and Libya
 These countries are labelled as terrorist countries by the US state department and
may use the revenues to fund civil wars
Revenue Management Plan
 Revenue Management is the application of analytics that predicts consumer behaviour at the
micro-market level to optimise product availability and price to maximise revenue growth.
 The primary aim of a revenue management strategy is selling the right product to the right
customer at the right time for the right price.
 World Bank wanted to ensure that the ‘New” wealth from the project would be invested for the
well-being of all Chadians
 Chad would receive $1.8bn of cash flow in the form of taxes, royalties and dividends

Aspects of the RMP:

 16% of cash flows as tax, to be used at the government’s discretion for general development
purposes
 Royalties and dividends to be deposited into a Special Petroleum Revenue Account and used
as:
 10% deposited in foreign financial institutions to finance poverty reduction programs of future generations
 Of the rest 90%, 85% to finance development in 5 key sectors (education, health and social services,
rural development, infrastructure, and environment and water resources)
 Rest, 15% would go to government budget and Doba region programs

 $25 mn payment from Chevron and Petronas not covered under RMP
 Oversight and control of the RMP:
 The World Bank and Chadian government would approve a detailed annual expenditure
program
 Program to be reviewed by an oversight committee consisting of 9 members (7 from the
government, one from an NGO and one from a trade union) with a term of 3-5 years
 Committee to publish a yearly review of operations subject to external audit
 World Bank to review all expenditures and monitor the full program
 To ensure implementation, the RMP would be a contractual obligation would be put under the
IBRD and EIB loans
 The government’s performance would also determine future lending
 In 1998, the Chadian government passed a law to implement the above stipulations
 To further demonstrate it commitment to economic reform and development,
 It privatized 45 out of 50 state-owned enterprises
 Cut the military budget in half
 Reallocated public expenditure to increase development efforts
Opposition
 No history of development in Africa due to investment in oil. E.g. Nigeria,
Congo, Angola and Gabon
 Detrimental social and environmental impacts with minimal development
benefits
 The project designed had little chance of delivering the benefits claimed while
having high risk of environmental damage and social disruption
 Predicting oil leaks with the state-of-the-art technology has a failure rate of
0.002% which is equivalent to 2000 gallons a day without detection
 Vague laws that have been introduced to enable the project and lack the
details necessary details for effective oversight
 Inability of the world bank backed by history where the poor and vulnerable
groups who have been relocated to re-establish their livelihood
 Revenue management plan had corporate heavy board with less
representation for the locals and option to be changed every five years
Lessons Learnt
 Besides the feasibility of the project in terms of NPV calculations for
assessing a project, external factors are also extremely important
especially in developing nation
 Based on the kind of projects you need to assess the backlashes from
the critics, environmentalists and locals
 Assessing the political climate is extremely important as any changes in
the regime or change of mind of the leader world put a hamper to the
project
 Contingency should be made for every risk factor in a project with
proper steps to oversee and manage it