Egyptian General Petroleum Corp. and Russia’s OAO Bashneft are among oil and gas firms raising $2.4 billion of loans this month, taking advantage of soaring prices to boost borrowing by energy companies 50 percent.
Loans to oil and gas companies in Europe, the Middle East and Africa increased to $86.4 billion last year from $57.5 billion in 2009, according to data compiled by Bloomberg.
Companies are seeking to boost production as crude futures on the New York Mercantile Exchange have advanced 16 percent over the past year to $87.65 after reaching a 27-month intraday high of $92.58 a barrel on Jan. 3. Crude may rally to as much as $100 a barrel this year for the first time since 2008 as central banks pump cash into their economies to revive growth, according to JPMorgan Chase & Co. and Bank of America Merrill Lynch.
“A lot of smaller, independent oil companies are gearing up with loans for the eventual development of more oil and gas fields,” said Iain Armstrong, an analyst at broker Brewin Dolphin Ltd. in London. “While the oil price stays over $70 a barrel, you’d be struggling to find any project in the world that isn’t going to at least break even.”
Egyptian General Petroleum Corp., known as EGPC, is poised to hire banks for a new $2 billion pre-export financing loan, according to a person familiar with the discussions. The Cairo-based state oil company signed $3 billion of loans to fund oil exports last year, paying interest of 275 basis points to 325 basis points more than benchmark rates, according to data compiled by Bloomberg.
Bashneft to Borrow
Bashneft, controlled by Russian billionaire Vladimir Yevtushenkov’s AFK Sistema, is seeking to borrow $300 million for three years in its first syndicated loan from international banks, according to Bloomberg data. The Ufa, Russia-based producer plans to increase oil output by at least 500,000 metric tons to about 14.5 million after winning the rights last month to develop two Arctic deposits.
North Energy ASA renewed and more than doubled a loan for exploration this month to 760 million kroner ($130 million). The Alta, Norway-based company said it plans to explore eight wells in the next two years.
Global investment in developing new oil supplies by the top 70 companies rose by 9 percent to $470 billion last year, according to the International Energy Agency, a Paris-based adviser to oil-consuming nations.
Sating Oil Demand
The industry will need to spend an average of $310 billion a year through to 2035 to satisfy world consumption, which is forecast to climb 1.4 million barrels a day, or 1.6 percent, to 89.1 million this year, according to the IEA.
“As we come out of the crisis, energy is going to be in higher demand,” said David Mannarino, a vice-president and director at Fifth Third Bancorp in Brussels.
Banks cut the cost of lending to oil and gas companies in Europe and the Middle East by 33 percent to an average 249 basis points over benchmark rates last year, compared with 369 basis points in 2009, according to data compiled by Bloomberg. This compares with a 10 percent decline in loan margins for corporate borrowers in Europe, the Middle East and Africa overall, Bloomberg data show.
“Energy companies and traders are attractive to banks because they tend to be in the low-investment grade or high-speculative grade categories, which still pay decent interest margins and have shorter credit tenors,” said Mannarino. “Right now bank competition for strong credit deals is driving margins down.”
Falling Interest Margins
Russia’s OAO Gazprom Neft and OAO Tatneft are taking advantage of falling interest margins to cut the interest they pay on loans signed last year.
Gazprom Neft wants to cut the margin it pays on a $1.5 billion five-year pre-export financing loan to 160 basis points more than the London interbank offered rate from 210 basis points, according to data compiled by Bloomberg. The Moscow-based company is offering lenders a fee of 20 basis points to lend an amount equal to or less than their commitment under the original facility, and a step-up fee of 75 basis points on any new money they agree to lend at the reduced cost.
Tatneft asked banks to reduce the interest it pays on $1.8 billion of loans by 70 basis points to 240 basis points over Libor for the $800 million three-year portion and 340 basis points above Libor on the $1 billion five-year part, Bloomberg data show. A basis point is 0.01 percentage point.
Gazprom Neft is ranked Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s. Tatneft, based in Tatarstan, has a Ba2 rating from Moody’s and a BB rating from Fitch Ratings.
“The market is now open, the oil price is higher,” said Armstrong. “Lenders are happier to lend to a company that’s investing in that sort of scenario.”