Alexander Metherell is a Head of Metals & Mining, Chemicals & Fertilisers at VTB Capital, the wholesale investment banking division of VTB Group. Here he talks to Finance Monthly about the market at present and key challenges in the oil and gas sector
- Given the current predicament in the wider Natural Resources sector for Companies focussed on commodities, how do you believe that your clients will be able to raise financial resources for new projects and investment into the wider sector?
- It is a very challenging time for Resources businesses and the rapid slowdown / fall in prices has seen many Companies across the sector seek to significantly curtail operating costs and defer or cancel large commitments in respect of costly Capex projects. Nevertheless, there remains a large number of clients across the Oil and Mining sectors who have focussed on large, well defined, high quality assets which even in a low price environment are capable of sustaining attractive margins. There is the need to differentiate between commodities where the supply/demand dynamic will reassert itself and prices should equilibrate upwards – even if not at some of the highs seen in recent past. Raising finances for these clients is something we continue to pursue. However, for the more marginal speculative projects disadvantageously positioned on the cost curve funding will prove to be very challenging. Clearly there will be opportunistic acquisitions where the stronger Corporates will be able to pick up assets advantageously. On the equity side we also have an increase in the number of interested strategic investors and so I believe that it is the timing of any capital raise that is more critical. The question is whether banks and creditors will drive that discussion or whether Company management will drive those plans and take the initiative.
- What are the key challenges that your clients face in relation to business and investment projects in the oil and gas sector across Europe in Russia and across African continent?
- New development projects tend to be in challenging environments either offshore or in harsh environments which allied to the necessary Environmental protections make extraction much more costly on a $ per boe/t basis than for the prior generation of fields. This naturally leads to a marginal breakeven price (outside of some onshore fields in the US) which looks materially higher than the current oil price would indicate. This mismatch has the advantage of instilling greater price discipline in new “final investment decisions” and forces out speculative development but it also harms the longer term decisions that are required when looking at 20 and 30 year projects which need shareholders, investors and financiers to look well beyond the near term 6 and 12 month volatility associated with the near term price curve. Clients with capital also need to consider the relative merits of greenfield projects versus acquiring financially challenged companies.
- How do you see VTB Capital’s role evolving in the coming years?
- VTB Capital has taken a focussed approach to developing its expertise across a number of specific Industry Groups and whilst clearly seeking to maintain a leadership position in the Russia/CIS region has been steadily growing its international footprint and offices. With a clear focus on seeking to facilitate client transactions within an Emerging Market context we believe that we will continue to see strong growth of our business with China, in sub Saharan Africa and more broadly into and out of the Russia, CIS and central Asian regions where VTB has a distinct mandate to grow its business and where our regional presence offers larger clients the expertise and connectivity that can facilitate utilising our balance sheet strength and advisory expertise to complete transactions across this region.