As we Head towards the assessment of 2C Resources - the unrisked...

As we Head towards the assessment of 2C Resources - the unrisked best estimate scenario of Contingent Resources - on Mikuyu !!

Here is a useful bit of Weekend Reading ?

RESERVE(S ?) - BASED LENDING:

Reserve-Based Lending (RBL) is a type of financing for independent exploration and
production companies. RBL is a “borrowing-base” type of loan sized on the basis of the
projected Net Present Value (NPV) of cash flows generated by the underlying oil & gas assets.

The facility is repaid using the proceeds that derive from sales of oil & gas from these assets.
RBL is on a constant evolution, being re-determined on a recurring basis.

This means that the amount of the facility will increase or decrease during the loan-life to reflect changes in the
assumptions (i.e. production, oil & gas prices, reserve assessment, taxes, etc.).

RBL is used to finance acquisitions, develop projects, improved production rates, etc.

A DYNAMIC MARKET

Reserve-Based Lending is a long-established product, which first appeared in the U.S. before
spreading to the North Sea and the rest of the world.

The RBL market can be divided into two segments, the U.S. market, serviced by North American based banks, and the international
market, centralized in London and Paris.

One of the broader differences between the U.S. and international markets is that, in the U.S., it is possible to own the oil & gas reserves
underground, which means that mortgages can be secured on the fields and the reserves.

With other jurisdictions, oil & gas companies simply have a license to extract and sell the
produced reserves.

On the international market, security consists of the borrower’s interests, such as shares in the operating or holding companies, plus insurances and hedging agreements.

The use of the RBL structure accelerated in the 1970’s, which coincided with the beginning of
development in the North Sea.

The large size of the discoveries in the North Sea required significant capital expenditure to bring them into production, and independent oil & gas
companies turned to financial institutions.

Around 40 banks are involved in the sector.

French banks have been at the forefront of the RBL market, with a particular focus on Africa. !! (see also TotalEnergies !!)

Other European (UK, German, Dutch banks) and Japanese banks are very active on the international market.

American banks are mainly focused on the U.S. market.

More recently, there has been a sharp rise in the number of nonbank financial institutions financing and investing in the oil & gas industry.

(Also) - Private equity has been active through mergers and acquisitions, especially with companies looking to acquire and increase production on mature fields.

A number of (re)insurers actively support financial institutions on their RBL portfolios.

However, few of these (re)insurers have in-house expertise from the oil & gas industry itself.

SCOR is unique in this respect, and consequently has a stronger understanding of the underlying risk factors associated with RBL’s

Under - KEY RISK FACTORS see: Production Sharing Contract - Scott's Next Port of Call ?

The Production Sharing Contract (PSC) is the most popular type of contract.

"Independent companies receive a license to explore/develop a defined block and are responsible for all
costs involved in exploring and developing any reserves they discover.

"The state retains ownership of the underlying reserves but will grant the oil company rights to keep revenues
covering the costs of exploration and a share of the profits (cost/profit oil)."

https://www.scor.com/sites/default/files/scor_memo_rblinsurance_web.pdf


Have a Good Weekend - Reading !! -------- Oilf.