Solutions

Working Capital Financing

Established companies can put in place conventional oil-related working capital finance facilities that will generally allow the company to raise cash and issue letters of credit against a borrowing base of oil inventories and/or accounts receivable. These structures, generally asset backed loans (ABLs) or borrowing base facilities (BBFs), are based on the client providing the lender with a first lien on the inventory and/or accounts receivable.

CAS can source an alternative to these traditional working capital facilities. This alternative may provide higher advance rates and borrowing capacity, may be accessible for smaller or early-stage companies (for which conventional finance may not be possible), or may provide accounting advantages such as off-balance sheet treatment.

CAS can assist putting these facilities in place for refineries, terminals, pipelines, and cargo voyages. These will generally be commodities solutions in which an inventory ownership structure with a 3rd party capital provider (financial institution or trader) will be established. In addition to funding inventory, these facilities can also provide an alternative to letters of credit for supply activities and/or funding for accounts receivable for oil sales activities.

CAS can provide a turnkey process, from start to finish. In this context, CAS would work with the client to identify capital needs, develop an RFP, access capital providers, collect and evaluate RFP proposals as well as structure and negotiate the final funding agreements. CAS can also provide ad hoc services around these processes if a client seeks advice or assistance with just specific aspects of the funding process. Ad hoc services may also be helpful to companies who have the expertise but would benefit from an additional resource to help push the process through its various stages to completion, or in simply getting a 3rd party perspective on the transaction.

Commercial Agreement Optimization

The profitability of refineries, terminals and pipelines is underpinned by the supply and offtake that is contracted to occur through those assets. CAS can add value for asset acquirors or owners by optimizing their supply and offtake agreements. In the broadest scope, this can be done by assessing the inherent physical optionality associated with the asset. Around this framework, enhanced asset use agreements can be structured to capture additional value for the asset owner. This may involve a shared approach to upside capture with a trader or other market participant. In a narrower context, CAS can help asset owners optimize their asset usage agreements by identifying improvements in terms or providers for the agreements.

Environmental Credits Funding

Environmental credits such as Voluntary Carbon Credits (VCCs), RINs, California Carbon Allowances (CCAs) and Low Carbon Fuel Standard (LCFS) are becoming an important part of the marketplace. Industry participants are finding that funding these credits is also of increasing importance. While these credits can sometimes be included in conventional financing structures (like ABLs and BBFs), they can also be funded through a structured commodities solution. CAS has extensive experience in utilizing a repo structure to fund these credits. Under the right circumstances, these credits can be funded off-balance sheet. CAS can assist with developing the funding structure, identifying funding sources, and structuring, negotiating, and closing the structured environmental credits funding agreement.

Commodities Structured Finance

Commodity streams can be used to secure financing through a structured transaction. The general principal is that the value of the commodity asset can be monetized at inception, in exchange for a future delivery of the commodity to the funding provider. Often these can be structured such that the funding is not treated as debt on the client’s balance sheet.

CAS can either provide turnkey service (from identification to closing) or can assist a client on an ad hoc basis with sourcing capital providers, optimizing structure, reviewing agreements, or in providing an additional expert view on the transaction. A wide range of potential structures can be used to generate funding:

Oil and/or gas in the ground (PDP production) can be monetized through a volumetric production payment (VPP) or through a similar secured pre-pay structure.
An in-the-money contract for future physical delivery of a commodity stream can be monetized through a pre-payment structure.
A portfolio of exchange traded futures contracts can be monetized through a novation. If the client wishes to maintain the hedge position, an equivalent OTC swap can be put in place. This can be a source of liquidity for the client if the funding provider is able to utilize their credit line to the client or if the client is able to pledge related commodities contracts as collateral.