MARKET UPDATE FOR OIL PROJECT FINANCING

• Jurisdiction: Derecho Internacional

Oil and Gas Development in Latin America
(Mar 1999)
CHAPTER 19C
MARKET UPDATE FOR OIL PROJECT FINANCING
Lauren Arnold, Vice President
CREDIT SUISSE FIRST BOSTON
New York, New York

1) Since October 1997, and particularly since May / June of 1998, commercial sources of financing for Latin American Projects from all sectors have deteriorated

a) Emerging Market project financing volume in both the bank and bond markets has declined since 1997

b) Latin American sovereign borrowing costs relative to US treasury rates have increased substantially

c) Latin American project borrowing costs relative to US treasury rates have increased substantially

2) Oil market trends have only made the process worse for oil / energy related transactions

a) Investors, banks and rating agencies have revised view of oil price forecasts

i) Project economics must now withstand $10 per barrel projections

ii) Project economics must now withstand increased volatility scenarios

iii) Sponsor credit quality must be superior

b) Increasingly negative view of economic and political outlook for countries with high exposure to oil market revenue

i) Venezuela

ii) Middle East

3) Transactions with solid economics are...