FINANCING PETROLEUM DEVELOPMENTS IN THE 1990'S

Abstract

Banks in many parts of the world, including Australia, have tightened credit because of their level of loan losses in the late 1980's and early 1990's. However, recent financings of petroleum projects in this region indicate that the banks' appetite for such lending has not been adversely affected. In fact, banks which lent to Australian petroleum projects in the 1970s and 1980s have generally not only had a return on their money but have also had the return of their money.

The funding requirements for Australian petroleum developments in the 1990s and beyond appear considerable. It is expected that there will be keen competition from the banking sector to supply these funds.

The need to properly assess and mitigate the risks inherent in such developments will continue, if not heighten, as advanced technology, often in hostile environments, is required to develop more marginal fields.

In so far as oil price, foreign exchange and interest rate risks are concerned, there is likely to be a growing emphasis by banks on managing risk so as to contain what historically have been high levels of volatility. A number of products have been developed by banks to manage these risks and if correctly applied they can also serve to reduce risk. There is some cost, however this can be offset by application of the same bank products. By reducing risk it is also possible to obtain higher levels of debt.