Reserved Based Lending (RBL) Method for Project Financing of EGIZ Working Area

Abstract

In 2020, the oil and gas industry was facing significant turbulence due to a global pandemic of coronavirus outbreak, forcing people to stay at home, industries to shut down temporarily, and global energy demand was drop dramatically, forcing oil prices to fall to lows.

In that situation, oil companies must adapt so they’re doing more to cut costs. As a result of the global oil price decline, most oil and gas companies, including PT Prima Energi holding, were experiencing financial difficulty. So that funding for new projects and the acquisition of new blocks from shareholder investment and bank loans will certainly be affected.

This research is about PT Prima Energi's strategy of keeping the asset and sharing that pledge with the bank. PT Prima Energi deals with a loan from a bank when the oil price was high to acquire PEG (PE PEG) assets in 2018. At that time, the cash flow of PE PEG can service this debt but after the decline in oil price, the company can’t survive although only maintain operations. PE PEG must cut many operational costs and delay expansion projects so that gives the company's cash flow performance effect not the same as when the loan agreement was signed. If PE PEG can’t repay the principal and interest of the loan, PT Prima Energi will lose its rights to PE PEG. For this reason, the company must do refinancing to settle the previous loan with the new loan.

PT Prima Energi has a subsidiary named PE EGIZ that sells gas and is not affected by declining oil prices. PE EGIZ will be submitted for PE PEG loan refinancing. Because of the high-level risk business in the oil and gas industry and PE EGIZ doesn’t have assets that value bigger than the previous loan so the bank provided a new scheme of loan submission that is Reserve Based Lending (RBL). The RBL method makes the bank feel more secure because the determining loan amount uses the company’s cash flow performance and the bank will do a redetermination every 6 months to review the company’s performance.

For a company like PE EGIZ that doesn’t have a big asset, it also has an advantage within process loan requests. PE EGIZ only needs to provide forecast entitlement that reflects the gas sales agreement that they have until the loan end date based on reserves tail calculation. The RBL system can help PT Prima Energi to settle the previous loan and preserve PE PEG assets.