Staatsolie eyes capital markets amid new era

Suriname’s oil company could be on the verge of an exciting discovery that will be likely to bring a first venture into international capital markets. Work to ensure the company is prepared for this brave new world is well under way.

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Rudolf Elias - Suriname 2018
Rudolf Elias, CEO of Staatsolie
Rudolf Elias is a man with a mission. The former BHP Billiton project director is at the helm of state-owned oil company Staatsolie, charged — among other things — with coordinating one of the most promising offshore exploration areas in the world.

Elias is well aware that offshore oil discoveries that rival the scale of those found in neighbouring Guyana could transform Suriname forever. But it has to be managed properly. Though it would be the finance ministry’s job to ensure any windfalls are put to good use, the oil is the responsibility of Staatsolie, which plans to be a partner in any successful oil finds there.

That means Staatsolie itself has to be in good health.

“We have to ensure that we are acting in the short term in a way that allows us to be successful in the long term,” says Elias, CEO of Staatsolie since May 2015.

Here enters the company’s 2016-2020 “Strategy for Success”, which states that it needs to prepare Staatsolie to become the “partner of choice” for international oil companies drilling in offshore Suriname.

Achieving this means adapting quickly to future oil markets. Having spent the past decade investing heavily in downstream activities, Staatsolie is refocusing on finding and producing oil, while efficiency, not growth, is the name of the game for downstream.

In more volatile markets, “it is very important that everything we do will be based on the assumption that the oil price will be lower for longer”, says Elias. “Therefore we want to ensure that we remain a first quartile producer.”

A first quartile producer — meaning one that produces with the lowest quarter of the cost curve — can be successful for 40 or 50 years, reckons Elias, even if oil will no longer be the driver for global energy growth.

Right now Staatsolie produces around 6m barrels annually, and its immediate growth will come from near-shore and shallow off-shore exploration.

“Even if we don’t find commercial quantities, near-shore drilling will be useful to tell us about the migration of oil,” says Elias. “Then 2020-2025 will be an exciting period for shallow offshore.”

BOND, EQUITY MARKET DEBUTS IN THE WORKS

In May 2018, Staatsolie raised a $625m loan from a syndicate of international banks that enabled it to repay a $261.5m loan from the government, on which it was paying 9.25% interest, and purchase the government’s 25% share in the Newmont gold mine for $76m.

According to one US-based Latin America credit analyst, refinancing the expensive loan put Staatsolie “in a much stronger financial position and gives it a cleaner capital structure if it wants to approach international markets”.

If a company strikes big with an offshore oil find in Suriname, this will be necessary. Staatsolie will look to be a 10%-20% partner in offshore oil finds, and the CEO believes it would require $1bn of financing to do so.

One option would be to return to the syndicated loan market, but the company “would love to raise the money via an IPO”, says Elias.

First up would be a debut international bond, however, pencilled in for late 2018 or early 2019.

“One part of the process of getting ready for an IPO is issuing a bond — either at the end of this year or early next,” says Elias. “That way banks and international institutional investors would begin to get to know us ahead of the IPO.”

Proceeds would be used to pay off around half of the company’s bank loan.

In an effort to meet the standards required by international bond markets, Staatsolie has employed Ernst & Young as accountants to go over its numbers, while the company has moved from US GAAP to IFRS accounting standards to be more transparent for capital markets.

But preparations are more than just financial. A key arm of Staatsolie’s strategy is about preparing its people. Pairing up with a major international oil company means thinking more efficiently about safety, costs and production — and getting that balance right, says the CEO.

CULTURAL SHIFT

To help achieve this, the company has introduced a cultural change programme and a succession planning programmes to identify young talent and bring them to managerial positions by design, rather than by default.

“If we manage to have a company where everyone enters with a sense of purpose and leaves with a sense of accomplishment each day, we’ll have succeeded in becoming a world-class company and will be able to handle the big off-shore projects,” says Elias.

He is adamant that it is not just Staatsolie itself that must prepare for the discovery of deep offshore oil, but also Suriname’s business community, as local firms are going to be needed to support the burgeoning industry.

“If they wait until we discover oil to design the strategy it will be too late,” says Elias. “The local business community needs to be looking today what is necessary to be ready for tomorrow.”