HSBC-Chevron LT Strategy

Alexandra Avetian – Krunal Naik – Julian Gonzalez – Oliver Homes – Jack TungStructured Finance Spring 2013

HSBC Products and

Basel III Implications

HSBC

• One of the Largest International Banks in the

World

– 4th largest by Assets

• Wide array of products and customized financial

services options

HSBC Structured Products

Customized Products

Collateralized Obligations

Debt

Swap

Bond

Loan

Asset Backed

Securities

Commercial Paper

Securitization of

Inventory

Receivables

Project Finance

Basel III Implications• Capital Ratio = Capital / Risk-weighted Assets

– Risk-weighted Assets now include capital market

activities: trading book, securitization

products, counterparty credit risk on OTC derivatives

and repos.

• Closes Trade Book Loophole

• For AAA-rated Tranches

– Basel II – 7% Risk Weight

– Basel III – 20% Risk Weight

• Investors now have to carry 4 times more capital

Basel III Implications

Basel III Implications

Chevron and Its Needs

Why Chevron Needs Our Products

Why Chevron Needs Our Products• In Short-term:

– Minimize the oil-price decrease risk

– Increase enterprise value immediately

Why Chevron Needs Our Products

Why Chevron Needs Our Products

Why Chevron Needs Our Products• Long-term:

– Currently Developing New Nature Gas Field in South Nigeria

with NNPC

– Reported new Natural Gas Field in Arckaringa Basin,

Australia (04/23/2013)

• Two ways to raise the investment money:

– Securitization

– Project Finance

Benefits

• Potential lawsuit payout of $18billion in Ecuador.

• Reduce the cost like tax expense (Debt created Tax

Shield)

• Risk Transfer

Financing Package

How to Finance?Strategy

• Use short term securitization from year 0 to year 2

• Use project finance from year 2 to year 5

• Securitize receivables or future cash flows from year 5

to year 7

Available options

• Reserves/Inventory securitization

• Present cash flows

• Future cash flows

Short Term

1st 2nd 3rd 4th 1st 2nd 3rd 4th

Crude Oil (dollar/barrel)

WTI Spot Average 94.34 94.33 94.00 93.00 93.00 92.00 92.00 92.00

Brent Spot Average 112.51 108.00 107.00 104.33 103.33 101.00 100.00 99.00

2013 2014

ST Securitization (years 0-2)

Trend suggests downward pressure on crude oil prices

ST Securitization (years 0-2)

• Within the last few weeks volatility has

gathered increasing

momentum, suggesting greater

uncertainty for the stability of oil prices

Assumptions:• 275,000 barrels/day from the Tengiz project

• $107.96 Average 2013 Brent Crude Price

• 99,000,000 Yearly Barrel Capacity

Brent Crude 2013 Optimistic Neutral Pessimistic

60% of Current Price 50% of Current Price 40% of Current Price

Barrels/day 275,000.00 275,000.00 275,000.00 275,000.00

Average 2013 Brent Crude Price 107.96$ 64.78$ 53.98$ 43.18$

Monthly barrel capacity 8,250,000.00 8,250,000.00 8,250,000.00 8,250,000.00

Yearly barrel capacity 99,000,000.00 99,000,000.00 99,000,000.00 99,000,000.00

Monthly recievable 890,670,000.00$ 534,402,000.00$ 445,335,000.00$ 356,268,000.00$

Yearly recievable 10,688,040,000.00$ 6,412,824,000.00$ 5,344,020,000.00$ 4,275,216,000.00$

Chevron Stake (50%) 5,344,020,000.00$ 3,206,412,000.00$ 2,672,010,000.00$ 2,137,608,000.00$

Avg A/R percentage of Revenue (35%) 1,870,407,000.00$ 1,122,244,200.00$ 935,203,500.00$ 748,162,800.00$

Securitizable Amount per year 1,870,407,000.00$ 1,122,244,200.00$ 935,203,500.00$ 748,162,800.00$

less cash reserve (10%) 187,040,700.00$ 112,224,420.00$ 93,520,350.00$ 74,816,280.00$

Securitized Amount per year 1,683,366,300.00$ 1,010,019,780.00$ 841,683,150.00$ 673,346,520.00$

Total 2yr Project Securitization Amount 3,366,732,600.00$ 2,020,039,560.00$ 1,683,366,300.00$ 1,346,693,040.00$

Securitization Structure (years 0-2)

LT Strategy

Year 2 to Year 7

Australia : Arckaringa Basin

April 23,2013

Shale find Value Oil equivalent Recoverable

Biggest $20 trillion 103 to 233 bb 3.5 bb

Source Estimated value

Prospects of the Future Projects

Cost

• Extraction : 20%

• Infrastructure : 80%

Estimates(per year)

• Total : 12.5 billions

• Extraction: 2.5 billions

• Pipelines: 10 billions

Source: Estimations

Investment

• Mitigate Oil price risk

• Start extraction process

Securitize reserves

• Get $37.5 billion in 3 years

• Start Extraction and transmission

Project Finance

• Reserves

• Present & future CF

• Payoff debtAsset backed Securitization

Now Year 2 Year 5 Year 7

Get $37.5 billion

using Project Finance

Payoff debt using

Securitization

Short term

Securitization

Seven Year Strategy

Long Term Securitization Process

HSBC

Natural gas reserves found in

Arckaringa

Analysis• Pro

– By using securitization

Chevron frees its cash

reserve to be allocated

else where

– Risk Transfer

– Inventory/Reserve

securitization is less risky

– Capital injection and LT

stability

– Off Balance Sheet

• Con

– Rising costs due to

regulation (Basel III)

– Receivable/CF tied up

– SPV and stakeholder

management

Thank You