Project Finance for oil refinery construction and loans for modernization

Project Finance for oil refinery construction and loans for modernization

Project Finance for oil refinery construction and loans for modernization

Published May 2 


HAVELET FINANCE
By HAVELET FINANCE

67 Articles


In recent times, project finance for the construction of refineries and long-term loans for equipment modernization play an important role in the development of the industry around the world. The economic recovery after the crisis requires significant supplies from the oil and gas industry. This provides a powerful impetus for financing the construction and expansion of oil refineries (downstream), as well as for investing additional capital in the exploration and operation of oil fields (upstream) to ensure stable growth. These are capital-intensive projects that start with the development of oil fields and end with high-tech oil refining and large-scale logistics projects.


In order to obtain financial resources for the development of oil production, transportation and refining, it is extremely important for management to understand the principles of the capital market, financial mechanisms and available options applicable to the hydrocarbon industry.



Havelet Finance Limited provides project finance for the construction of refineries and offers long-term loans for the modernization of refinery equipment. Project finance and lending: from €50 million with a loan duration up to 10–15 years.



The time interval between the initial investment in the oil and gas industry and the achievement of stable cash flows in some cases takes up to 10 years. Tightening environmental standards complicate the development of the industry, requiring companies to make new costly solutions to minimize harmful emissions. All of the above indicates that choosing the right sources for long-term project financing is critical to success. Money is a valuable resource in times of high liquidity when interest rates are low. Exporters of oil and petroleum products are in dire need of investment to maintain high productivity in the sector, provide national economies with fuel and prevent imports of petroleum products. The lack of available funding sources in this situation can adversely affect the results of not only individual companies, but also entire sectors.



Havelet Finance Limited is ready to provide long-term loans for the construction and modernization of oil refineries anywhere in the world. Over the years, our company has supported financing large investment projects in Spain, Germany, France, Saudi Arabia, China, Mexico, Brazil, Argentina, South Africa and other countries.


We are always open to cooperation with large companies offering promising investment projects. It is important for decision-makers to clearly understand the reasons that make it difficult to attract financial resources for the development of the oil and gas sector and use them effectively. These reasons are directly related to the internal mechanisms of corporate finance and capital markets. Our financial team will provide professional support and advice to customers at any stage of an investment project.


Principles and problems of financing the oil and gas industry.

  • Upstream: covers any activity of oil and gas companies, from exploration of hydrocarbon deposits to their production (lifting to the surface).
  • Downstream: activities related to the production of hydrocarbons and their subsequent transportation through pipelines, processing and sale. An economic analysis of the activities of a particular oil and gas company (investment project) should take into account production and processing in general. Industry-wide, upstream activities cannot be adequately assessed without analyzing downstream activities.

Investment activity factors

The final price for hydrocarbons represents the intersection of supply and demand. However, in the short term, certain geopolitical processes (for example, military conflicts in oil-producing regions of the world) or large-scale financial changes can affect prices more than economic considerations. The rumor of an imminent armed conflict in the Middle East immediately raises oil prices due to consumer concerns, even if the oil companies have not yet cut production. On the other hand, low interest rates are driving up the price of oil in the hope that the global economy will accelerate and spur demand. It is important to bear in mind that not all hydrocarbon reserves are available for immediate production.


For example, probable reserves account for a significant portion of the reports, so it is more correct to view actual production as a proposal. The price of oil and oil products will ultimately be among the deciding factors (along with the potential of oil fields) when investing in oil exploration, production and refining. The regulatory framework is also vital due to the long payback period for this type of project. This cycle can span up to 5 years for the construction of a refinery, or up to 10 years from the date of exploration to the sale of oil or gas to the market. The hydrocarbon production and processing industry is a striking example of the economy of scarce non-renewable resources. The more oil and gas produced, the less hydrocarbons remain underground and the more difficult it becomes to extract them. 


On the one hand, this makes oil and gas companies look for hydrocarbons in remote, hard-to-reach areas. On the other hand, refineries are increasing the efficiency of crude oil refining and require periodic expensive modernizations, which further increases costs.


This is a distinctive feature of the oil and gas industry, which adjusts prices based on demand (as in most sectors), as well as on the basis of natural resource decline. Obviously, maintaining a growing or at least constant supply requires huge capital investments over many years. In this context, the correct choice of sources and instruments for financing large investment projects becomes fundamental for the economic viability of each company.



Investment activity factors The final price for hydrocarbons represents the intersection of supply and demand. However, in the short term, certain geopolitical processes (for example, military conflicts in oil-producing regions of the world) or large-scale financial changes can affect prices more than economic considerations. The rumor of an imminent armed conflict in the Middle East immediately raises oil prices due to consumer concerns, even if the oil companies have not yet cut production. On the other hand, low interest rates are driving up the price of oil in the hope that the global economy will accelerate and spur demand. It is important to bear in mind that not all hydrocarbon reserves are available for immediate production. For example, probable reserves account for a significant portion of the reports, so it is more correct to view actual production as a proposal. The price of oil and oil products will ultimately be among the deciding factors (along with the potential of oil fields) when investing in oil exploration, production and refining. The regulatory framework is also vital due to the long payback period for this type of project. This cycle can span up to 5 years for the construction of a refinery, or up to 10 years from the date of exploration to the sale of oil or gas to the market. The hydrocarbon production and processing industry is a striking example of the economy of scarce non-renewable resources. 



The more oil and gas produced, the less hydrocarbons remain underground and the more difficult it becomes to extract them. On the one hand, this makes oil and gas companies look for hydrocarbons in remote, hard-to-reach areas. On the other hand, refineries are increasing the efficiency of crude oil refining and require periodic expensive modernizations, which further increases costs. This is a distinctive feature of the oil and gas industry, which adjusts prices based on demand (as in most sectors), as well as on the basis of natural resource decline. Obviously, maintaining a growing or at least constant supply requires huge capital investments over many years. In this context, the correct choice of sources and instruments for financing large investment projects becomes fundamental for the economic viability of each company.


Refining efficiency as the key to business success

Oil refining is a manufacturing process that converts crude oil into valuable commercial products. This production is focused on markets that consume distilled products such as naphtha (light product); kerosene, diesel and fuel oil (intermediate products), and heavy products that are used for the production of asphalt and lubricants. The refining process also produces liquefied gases, including butane and propane. Refinery efficiency is essential to maintaining high profitability. For example, heavy fractions can account for up to 40–45% of all refined products. If the residual oil is not used (for example, for the production of lubricants), the economic efficiency of the entire process will be low.


Corporate finance for oil and gas companies

A typical problem for any oil and gas company is to attract sufficient financial resources on acceptable terms at the right time to start and develop activities. Solving this problem allows businesses to conquer markets, build competitive advantage and thrive in times of economic uncertainty and global transition to a green economy. Corporate finance refers to raising and managing the financial resources of a business.


Long-term Financing for the Construction of an oil Refinery

Long-term financing of large investment projects in the oil and gas industry is based on the issue of shares and long-term bank loans against the future cash flows of the projects. While the former financing instruments are more typical for private companies, the latter are widely attracting both state-owned oil refineries and private capital.

Project Finance (PF) for the Construction of oil Refineries

The concept of project finance refers to targeted financing of large refinery projects and other facilities, which is based on the ability of the project itself to generate sufficient cash flows to service debt. This is a kind of off-balance sheet financing, when the project debt is separated from the financial statements of the originator and does not affect its creditworthiness. In typical project finance, the collateral (security or guarantee of the lender against default by the borrower) is the project assets, but not the initiator’s assets. A distinctive feature of project finance in comparison with direct financing (traditional loan) is that in the first case, the lender provides financing to the special-purpose vehicle, but not to the originator. The SPV / SPE institution financially separates the project from its originators.



Traditional corporate finance often does not specify the purpose of the loan or other borrowed funds. Project finance allows lenders to better manage credit risk than if they lend money directly to the company for multidirectional business activities. Usually, financing of the construction of an oil refinery is carried out using 70–80% of borrowed funds and, accordingly, 20–30% of the internal financial resources of the project initiators. Arranging project finance requires multilateral negotiations with stakeholders and the formation of a complex contractual structure. The cash flow of a specific project is seen as a guarantee of the return of funding. Structured finance methods are part of project finance and help banks minimize their risks through securitization.


Loans for the modernization of Refineries

Previously, it was believed that the main task of modernizing a refinery is to upgrade certain types of equipment and improve certain processes. Such activities, as a rule, are associated with the replacement or addition of existing equipment without changing the overall technological process. In the modern sense, the modernization of refineries, first of all, consists in the organization of investment measures aimed at improving production through consistent constructive and organizational changes. These changes must be comprehensive to ensure that the enterprise fully complies with the organizational, technical and environmental standards of the industry. In other words, the attention of management is shifted to the implementation of sequential investment operations aimed at the practical use of new scientific and technological knowledge in order to achieve commercial success. In this context, the priority of refinery modernization should be focusing on the future, sustainable development through comprehensive transformations. Such modernization should be based on the latest technologies in close relationship with the strategic goals of the company’s development, given its current state (depression, relative stability or rapid growth). It is important to emphasize that such activities cover not only production, but also facility management. A whole range of innovations should be directed towards the rational use of crude oil, increased use of by-products and environmentally friendly production.



Modernization can also be considered as a purposeful replacement of outdated elements of production and management activities. Thus, the current view of modernization should cover the full range of interconnected links in improving production, the management system as a whole, the state of the environment, work with personnel, and expanding the range of products.


Financing oil and gas projects on the best terms

The success of large projects in the oil and gas industry is based on the ability to generate stable cash flows over the long term. Deciding on long-term financing for the construction or modernization of a refinery is critical to business in a highly competitive environment. The mission of the company’s management is to make every investment decision as effective as possible and to find a way to implement an investment project that will bring the company a higher value. The subsequent operational phase of the project will require new solutions for financing working capital to ensure the operation of the refinery complex.



Havelet Finance Limited offers a wide range of services for business:


1# Project finance services for the oil and gas industry.

2# Advanced investment engineering, financial modeling and consulting.

3#Services in the field of engineering, construction and project management. 4# Loan guarantees and much more.

#5 construction and project management

#6 Services in the field of engineering,


We support the financing of large projects in the field of oil production and refining, develop advanced financial models for our clients and offer professional services of asset managers, technical consultants and economists. Havelet Finance Limited is supported by numerous reputable partners and Angel Investors, including large investment funds, banks and other financial institutions, engineering companies, research institutes in Spain and other countries, as well as renowned manufacturers and suppliers of oil refining equipment.


If you are interested in financing the construction of oil refineries or are looking for a long-term loan for the modernization of equipment, and other financing, please contact us at any time below;

Email: credit@havelet-finance.com

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