Case ID: 299012     Solution ID: 6934     Words: 2001 Price $ 75

Petrolera Zuata Petrozuata C A Case Solution

Case Solution

Petrozuata is a proposed $2.5 billion oil-field improvement extend in Venezuela. The case is situated in 1997 as the undertaking backers, Conoco and PDVSA (Venezuela's national oil organization), are wanting to meet with different advancement offices and rating offices in regards to the proposed monetary structure. The supporters want to raise a bit of the $1.5 billion obligation in the capital markets, which will require a venture evaluation rating. The key inquiries are whether the undertaking will accomplish a venture evaluation rating and, if not, how to back the task. Portrays what ended up being a to a great degree all around made money related exchange, one that was named "Arrangement of the Year" in 1997 by for all intents and purposes each diary covering undertaking account.

Excel Calculations

Leverage Sensitivity Analysis

Leverage (%) , Minimum DSCr ( x Times) , IRR (%) 


Equity Returns 

Equity Investment , ROE, Dividends, Ending Equity Value, Equity as a percentage of Firms Value,Equity Beta, ROE, Discount Facotr, PV of Cash Flows



Monte Carlo Output Table

Questions Covered

How should PDVSA finance the development of the Orinoco Basin?  What are the costs and benefits of using project finance instead of traditional internal finance?

What are Petrozuata’s three or four most important operating risks?  How does the deal structure address these risks?  Who would bear these risks if the project were financed internally by PDVSA instead?

As currently envisioned, debt will comprise 60% of the funds needed for the project.  Would you recommend a higher or lower leverage ratio? What happens to the minimum debt service coverage ratio and internal rate of return on equity as project leverage increases to 70% of project funds? Decreases to 50%?

What kind of debt (agency debt, bank debt, or Rule 144A bonds) should the sponsors use to fund the deal?  What are the advantages and disadvantages of each kind of debt?

Will project bonds receive an investment grade rating?  What is the “weakest link” in the project?

As one of the sponsors, what are your expected returns?  Please assume the asset beta for an integrated drilling, pipeline and refining firm is 0.60.

What kind of sensitivity/scenario analysis would you do to verify the project’s economics?

Would you invest in project bonds?  Would you invest equity capital as Conoco?

How should PDVSA finance its other oil field projects?