Case Analysis-

Petrolera Zuata, Petrozuata C.A.

Submitted By
Anupam Sharma
Introduction

Petrozuata (Joint Venture between Petrolos de Venezual S.A. (PDVSA) & Conoco Inc.)-
Planning team discussing about Funding new Project of $2.4 billion.

And were discussing on Number of Funding Options.

From Development agencies

Banks

Capital Markets.

Planned to choose an Optimal Mix from various options available depending on each
Sources Interest & Availability.
PDVSA SUBSIDIRIES

PDVSA

MARAVEN CORPOVEN PEQUIVEN

PDVSA provide 78% of Venezualas Export Revenues, 59% of government Fiscal

Revenues and 26% of Nations GDP.
La Apertura- Strategy opted to Fund Expansion.

This Strategy opened Venezuelan Oil Sector to Foreign Companies.

Profit Sharing Agreement.
Operating Service Agreement
Strategic Joint Venture Association.

PDVSA Targeted ORNICO Belt in Central Venezuela for development through strategic
association.

Criteria for identifying & selecting Foreign Partner.

Technological Know How.
Crude Oil Marketing Capacity.
Creditworthiness

PDVSA or its subsidiaries would contribute less than 50% of associations equity but would
get Priority Shares and Foreign entity would get Partner Share.

As PDVSA would be minority owner, Association would be classified as Private

Companies & would not be shown in PDVSA balance sheet.
La Apertura- Joint Venture.

1st Joint Venture 2nd Joint Venture

International oil companies

Petrozuata Sincor

MARAVEN CONOCO Inc NORSK

(49.9%) (50.1%) MARAVEN TOTAL STATOIL
HYDRO

For 35 years.

Maraven, The PDVSA subsidiary is involved in both deals. It is one of the Largest
Subsidiary of PDVSA producing 30% of Crude Oil.

Conoco Inc, was the petroleum subsidiary of EI du Point de Nemours and company
(DuPont). Du pont was one of the largest chemical producers in the world.

Conoco was recognized world leader in both refining technology & project
development.
Petrolera Zuata, Petrozuata C.A. (Petrozuata)
Conoco Interest
1. It is development project of already
established project, not an exploration
project.
2. Provide Crude Oil at Low Cost and for a
long term to its Lake Charles Refinery.
3. It had project experience and
technological Know how to get the job
done.
PDVSA Interest
1. Maraven had heavy crude oil reserves
and production technology while Conoco
had proven production and refining
technology.
2. Joint Venture lead to assemble a world
class management team and Duponts
creditworthiness in Financing.
Commitments done By Sponsors

- Sponsors Made commitments for the successful completion of Project. They Agreed to
provide funds including any unexpected overrun cost prior to completion.

- To declare Completion, project need to operated for 90days and has to meet certain level
of production.
Funding of Petrozuata Project

- Team decided for 60% of $ 2.425 billion expenditure, as debt Financing.

Sources of Equity Funds:
- Maraven & Conoco contributed $79 million in Capital.
- Oil Fields & Pipeline project will get completed in August 1998,
- They planned to sell Crude oil & use Cash Flows to fund Financial need of around $530
million.
Sources of Debt Financing
1. Bank Loan- Its Disadvantage
- Short Maturities-> It might result in Financial Risk during early years of Operation due to
Oil Price Volatility and delay in project completion.
- Variable Interest Rate
- Limited Amount.
- It can be expensive if Political Risk insurance Required, basis point increased by 300.
- Take 12 to 18months to arrange and for Legal Formalities.
2. Public Bond- Advantage
- Long Maturities
- Fixed Interest Rate.
- Available in Large Amounts.
Disadvantage
- Arranged in Lump Sum- Excess Fund would create a drag on earning.