Petrozuata Financial Model

Petrolera Zuata, Petrozuata C.A.: Analysis of Sponsor Returns and Debt Coverage Ratios Assumptions

(Change these six RED variables) Initial Oil Price in 1996 Annual Change in Oil Price (1996-2012) Royalty Rate (2001-2008) Royalty Rate (2009-2034) Total Debt Financing Leverage: Debt/Total Project Cost Project's Total Cost Tax Rate

$12.25 2.5% 1.0% 16.7% $1,450,000 60% $2,416,667 34%

Asset Beta Risk-free Rate (Yield on the 30-year Treasury Bond as of January 1997) Market Risk Premium Country Risk Premium

Year

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

Forecasted Maya Price

$12.25 $12.56 $12.87 $13.19 $13.52 $13.86 $14.21 $14.56 $14.93 $15.30 $15.68 $16.07 $16.47 $16.89 $17.31 $17.74 $18.19 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64

Change in Maya Price

2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Total Revenue

$0 $0 $78,524 $429,059 $803,290 $560,499 $580,141 $594,310 $608,833 $623,720 $638,978 $654,618 $670,649 $687,081 $703,924 $721,187 $738,882 $757,020 $758,224 $759,457 $760,722 $762,018 $763,347 $764,708 $766,104 $767,535 $769,001 $770,504 $772,045 $773,624 $775,243 $776,902 $778,603 $780,346 $782,133 $783,964 $785,842 $787,766 $789,738

Cash Available for Debt Service (CADS)

($80,007) ($610,492) ($820,154) ($139,352) $243,952 $383,869 $374,482 $351,470 $383,135 $379,409 $415,819 $416,376 $417,733 $364,040 $353,700 $359,505 $367,531 $309,595 $341,704 $373,643 $365,851 $366,964 $312,682 $293,660 $264,839 $281,934 $276,305 $278,150 $273,514 $274,138 $263,068 $262,329 $260,484 $250,113 $234,648 $238,181 $231,118 $229,576 $215,770

Total Debt Outstanding

$0 $1,000,000 $1,024,299 $1,242,981 $1,450,000 $1,411,120 $1,372,240 $1,333,360 $1,268,892 $1,205,447 $1,103,295 $992,187 $864,195 $768,166 $680,692 $576,861 $456,838 $408,576 $354,212 $256,355 $136,753 $75,000 $75,000 $75,000 $75,000 $75,000 $0

0.60 6.81% 7.50% 0.00%

Total Debt Service

Equity Cash Flows

$0 $935,950 ($63,079) $113,580 $85,113 ($157,629) ($154,472) ($151,315) ($171,563) ($165,270) ($195,423) ($195,059) ($201,103) ($161,187) ($145,382) ($153,095) ($159,037) ($83,154) ($84,614) ($119,749) ($131,281) ($68,159) ($6,405) ($6,405) ($6,405) ($6,405) ($75,000) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

($79,035) ($1,986) ($550,148) $1,576 $185,047 $227,819 $221,589 $190,031 $214,719 $199,063 $220,578 $218,294 $236,588 $210,755 $204,461 $203,439 $246,435 $225,711 $239,522 $248,128 $266,131 $329,682 $306,277 $287,255 $258,434 $241,232 $201,306 $278,150 $273,514 $274,138 $263,068 $262,329 $260,484 $250,113 $234,648 $238,181 $231,118 $229,576 $215,770

Debt Service Coverage Ratio

2.44 2.42 2.32 2.23 2.30 2.13 2.13 2.08 2.26 2.43 2.35 2.31 3.72 4.04 3.12 2.79 5.38 48.82 45.85 41.35 44.02 3.68

Note: This simplified version of the Petrozuata project's economics is designed to accompany Petrolera Zuata, Petrozuata C.A. , HBS No. 299-012. Although the have been made to model is based on the actual model used, a number of changes have been made to facilitate the analysis.

Model Output Minimum Debt Service Coverage Ratio (DSCR) Year of Minimum DSCR Average DSCR Internal Rate of Return Net Present Value

2.08 2008 10.46 25.1% $267,607

IRR and Minimum DSCR Output Table Leverage

IRR 25.1%

40% 45% 50% 55% 60% 65% 70% 75% 80%

18.4% 19.5% 21.0% 22.8% 25.1% 28.2% 32.5% 39.0% 49.0%

Min. DSCR 2.08 3.05 2.73 2.47 2.25 2.08 1.93 1.80 1.69 1.59

IRR as a Function of the Number of Years of Cash Flow Number of Years With Cash Flow

IRR

5 10 15 20 25 30 34

15.9% 22.7% 24.3% 24.9% 25.0% 25.0% 25.1%

Petrolera Zuata, Petrozuata C.A.: Analysis of Sponsor Returns and Debt Coverage Ratios

Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

Forecasted Maya Price $12.25 $12.56 $12.87 $13.19 $13.52 $13.86 $14.21 $14.56 $14.93 $15.30 $15.68 $16.07 $16.47 $16.89 $17.31 $17.74 $18.19 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64 $18.64

Change in Maya Price 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Total Revenue $0 $0 $78,524 $429,059 $803,290 $560,499 $580,141 $594,310 $608,833 $623,720 $638,978 $654,618 $670,649 $687,081 $703,924 $721,187 $738,882 $757,020 $758,224 $759,457 $760,722 $762,018 $763,347 $764,708 $766,104 $767,535 $769,001 $770,504 $772,045 $773,624 $775,243 $776,902 $778,603 $780,346 $782,133 $783,964 $785,842 $787,766 $789,738

Cash Available for Debt Service (CADS) ($80,007) ($610,492) ($820,154) ($139,352) $243,952 $383,869 $374,482 $351,470 $383,135 $379,409 $415,819 $416,376 $417,733 $364,040 $353,700 $359,505 $367,531 $309,595 $341,704 $373,643 $365,851 $366,964 $312,682 $293,660 $264,839 $281,934 $276,305 $278,150 $273,514 $274,138 $263,068 $262,329 $260,484 $250,113 $234,648 $238,181 $231,118 $229,576 $215,770

Total Debt Outstanding $0 $1,000,000 $1,024,299 $1,242,981 $1,450,000 $1,411,120 $1,372,240 $1,333,360 $1,268,892 $1,205,447 $1,103,295 $992,187 $864,195 $768,166 $680,692 $576,861 $456,838 $408,576 $354,212 $256,355 $136,753 $75,000 $75,000 $75,000 $75,000 $75,000 $0

Total Debt Service

Equity Cash Flows

$0 $935,950 ($63,079) $113,580 $85,113 ($157,629) ($154,472) ($151,315) ($171,563) ($165,270) ($195,423) ($195,059) ($201,103) ($161,187) ($145,382) ($153,095) ($159,037) ($83,154) ($84,614) ($119,749) ($131,281) ($68,159) ($6,405) ($6,405) ($6,405) ($6,405) ($75,000) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

($79,035) ($1,986) ($550,148) $1,576 $185,047 $227,819 $221,589 $190,031 $214,719 $199,063 $220,578 $218,294 $236,588 $210,755 $204,461 $203,439 $246,435 $225,711 $239,522 $248,128 $266,131 $329,682 $306,277 $287,255 $258,434 $241,232 $201,306 $278,150 $273,514 $274,138 $263,068 $262,329 $260,484 $250,113 $234,648 $238,181 $231,118 $229,576 $215,770

Cash Return on Investment

68.5% 64.6% 59.1% 62.9% 60.8% 65.1% 63.6% 62.3% 53.0% 50.2% 49.8% 49.7% 40.9% 45.1% 49.2% 48.1% 48.2% 41.0% 38.4% 34.6% 36.7% 35.9% 36.1% 35.4% 35.4% 33.9% 33.8% 33.5% 32.1% 30.0% 30.4% 29.4% 29.1% 27.3%

Debt Service Coverage Ratio

2.44 2.42 2.32 2.23 2.30 2.13 2.13 2.08 2.26 2.43 2.35 2.31 3.72 4.04 3.12 2.79 5.38 48.82 45.85 41.35 44.02 3.68

Equity/Total Capital at BOOK VALUES

Equity Beta

Cost of Equity

Discount Factor

PV ECF

100% 10% 40% 41% 42% 42% 43% 44% 45% 46% 49% 51% 55% 58% 60% 64% 70% 72% 75% 80% 88% 93% 93% 93% 93% 93% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

0.60 6.00 1.52 1.46 1.44 1.41 1.39 1.37 1.33 1.29 1.24 1.17 1.10 1.04 0.99 0.93 0.86 0.84 0.80 0.75 0.68 0.64 0.64 0.64 0.64 0.64 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60

11.31% 51.81% 18.18% 17.74% 17.57% 17.41% 17.24% 17.07% 16.79% 16.52% 16.08% 15.60% 15.04% 14.63% 14.25% 13.80% 13.28% 13.08% 12.84% 12.42% 11.90% 11.63% 11.63% 11.63% 11.63% 11.63% 11.31% 11.31% 11.31% 11.31% 11.31% 11.31% 11.31% 11.31% 11.31% 11.31% 11.31% 11.31% 11.31%

1.000 0.659 0.557 0.473 0.403 0.343 0.293 0.250 0.214 0.184 0.158 0.137 0.119 0.104 0.091 0.080 0.070 0.062 0.055 0.049 0.044 0.039 0.035 0.032 0.028 0.025 0.023 0.020 0.018 0.016 0.015 0.013 0.012 0.011 0.010 0.009 0.008 0.007 0.006

($79,035) ($1,308) ($306,647) $746 $74,511 $78,133 $64,822 $47,484 $45,939 $36,551 $34,892 $29,872 $28,142 $21,870 $18,570 $16,236 $17,362 $14,063 $13,225 $12,187 $11,681 $12,962 $10,787 $9,063 $7,304 $6,107 $4,579 $5,683 $5,021 $4,521 $3,898 $3,492 $3,115 $2,687 $2,265 $2,065 $1,800 $1,607 $1,357

Assumptions Initial Oil Price in 1996 Annual Change in Oil Price (1996-2012) Royalty Rate (2001-2008) Royalty Rate (2009-2034) Total Debt Financing Leverage: Debt/Total Project Cost Project's Total Cost Tax Rate Asset Beta Risk-free Rate (Yield on the 30-year Treasury Bond as of January 1997) Market Risk Premium Country Risk Premium

$12.25 2.5% 1.0% 16.7% $1,450,000 60% $2,416,667 34% 0% 0.60 6.81% 7.50% 0.00%

Model Output Minimum Debt Service Coverage Ratio (DSCR) Year of Minimum DSCR Average DSCR Internal Rate of Return Net Present Value

2.08 2008 10.46 25.1% $267,607

IRR and Minimum DSCR Output Table Leverage 40% 45% 50% 55% 60% 65% 70% 75% 80%

IRR 25.1% 25.1% 25.1% 25.1% 25.1% 25.1% 25.1% 25.1% 25.1% 25.1%

Min. DSCR 2.08 2.08 2.08 2.08 2.08 2.08 2.08 2.08 2.08 2.08

IRR as a Function of the Number of Years of Cash Flow Number of Years With Cash Flow

IRR

5 10 15 20 25 30 34

15.9% 22.7% 24.3% 24.9% 25.0% 25.0% 25.1%