White & Case acts on first ever internationally syndicated financing in Mauritania
London, January 10, 2006 —LAWFUEL – The Law News Network – White & Case advised ANZ Investment Bank as sole lead arranger and bookrunner in a breakthrough financing that establishes a successful template for international investment in natural resource reserves in areas of Africa with difficult political risk profiles. In the transaction, Hardman Resources, an independent Australian oil exploration firm, secured a US$100m seven-year financing to fund its share of the US$500m development costs of the offshore Chinguetti oil field in the Islamic Republic of Mauritania. The transaction is the first internationally syndicated financing in the country.
Discovered in 2001, the Chinguetti oil reserve has, according to Hardman, proven reserves of 175m barrels of oil and is widely thought to contain more than 375m. Production is scheduled to begin in early 2006, marking the first regular oil production in Mauritania. Analysts have speculated that Mauritania could host an as yet undiscovered entire hydrocarbon system.
The financing employed a reserve-based loan structure, where the funding available is determined by the oil producer’s proven reserves in the ground and the latent cash flow that these assets are projected to generate, rather than the more conventional method of securing lending against existing oil sales. Although reserve-based loans have been used quite extensively in the United States, their deployment in other countries is a relatively recent phenomenon. The structure provides oil exploration businesses – both majors and non-majors – with the ability to secure long-term funding for the development of oil fields in emerging markets.
With oil production in mature production areas declining, demand spiralling due to the hunger of the resurgent Asian economy and continuing fears over the political stability of the Middle East, Africa’s huge reserves of natural resources will be key to the growth of the world economy in the next 20 years.
Apart from the Chinguetti reserve, new oil fields have been discovered in the Democratic Republic of Congo (M’Boundi) and Algeria (Ledjmet). Fields are already being explored or are at various stages of production in Madagasgar, Gabon, Cameroon and Nigeria.
Commenting on the significance of the transaction, White & Case partner Jason Kerr said: “One of the key issues concerning investing in Africa has always been political risk and Mauritania, for example, has had its fair share. However, despite this, and without any foreign government or Export Credit Agency underwriting of the financing, this deal shows that the complexities and risks associated with investing in Africa can be successfully managed.”
The White & Case team advising ANZ on the financing was led by White & Case partners Jason Kerr and David Baker working closely with a team of more than 10 lawyers in the Firm’s London and Paris offices.