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Cash or credit?
01 July 2005
With oil prices at record highs, what role is there for project finance in the cash rich oil and gas sectors? By Terry A. Newendorp, Chairman and CEO, and Shilpa Shah, Associate, Taylor-DeJongh.
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The rise in oil prices that began in 2003 has continued this year, providing the oil industry with a steady stream of surplus revenues. Since the end of 2003, the weekly price for Brent crude has risen from $30/barrel to $50/barrel in the last week of May 2005. In addition, the forward price curve shows little decline in oil prices through 2010, indicating an expectation that high prices are to be a reality for at least a few more years.
Over the longer-term, a return to the historic average of around $26/barrel is a reasonable assumption.1 However, the price assumptions used by oil companies for the evaluation of potential long-term investments have only recently moved closer to this historic average as they have been revised upward and fears of a recurrence of the supply glut of the late 1990's begin to dissipate.
Nonetheless, the...
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