Petrolatina refinances on better terms

published 12 December 2011

PetroLatina, an independent oil and gas exploration and production company, has tied up a refinancing deal with French bank BNP Paribas.

The oil firm entered into a four year senior secured credit agreement worth $100m with the French lender to repay and replace its existing facility with Macquarie Bank.

The facility will be used to assist with financing the accelerated development and enhancement of the company's highly promising oil and gas assets in Colombia.

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The initial borrowing base has been set at $36m, of which around $29.4m has been used to repay the company's existing senior secured facility and close out all of the related oil price hedging contracts with Macquarie.

The new senior facility has a lower borrowing cost than the previous arrangement with Macquarie, with the borrowing cost set at the level of the 3-month US dollar London Inter-bank offered rate (LIBOR) plus 4.5% per annum, as opposed to a minimum of 3-month US dollar LIBOR plus 7.5% under the Macquairie facility.

Executive chairman Luc Gerard said: "The company endeavours to maintain an appropriate mix of debt and equity to finance its growth aspirations and the senior facility with BNP is consistent with, and an important part of, this strategy, serving to enhance our liquidity as we continue to execute our long-term exploration and development programme for our extensive asset base in Colombia."

Broker Westhouse Securities said that in view of the current perception of the debt capital markets' ability to provide gearing to the oil and gas sector at a reasonable cost of capital, "today's announcement should be taken as a positive sign that debt finance is still available to the industry for projects and portfolios at certain stages of development."

Concerns over access to funds at a reasonable cost has been weighing down the share prices of a number of oil companies with pre-development assets pending field development programme approval, the broker claims, citing Nautical Petroleum and Xcite Energy as two examples.

"This morning's announcement demonstrates that BNP Paribas, one of the sector's largest lenders, is still active in the oil and gas debt markets, and is prepared to lend large sums of development capital relative to company's equity valuations, for the right type of projects. Thus, given the balance of country risk of the UK North Sea versus Colombia, it would seems sensible to assume that debt financing for North Sea projects can and will be made available in time," Westhouse said.

The share price rose 9.65% to 15.62p by 14:19.