Storm Ventures

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	27343
Company name	Storm Ventures International Inc.
Country	Tunisia
Sector	Oil, Gas and Mining
Environmental category	B
Department	Oil, Gas, Mining And Chemicals
Status	Pending Approval

Date SPI disclosed	August 20, 2008
Projected board date	September 22, 2008

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Storm Ventures International Inc. (SVI or the company) is an early-stage North Africa-focused company engaged in the exploration and development of oil and gas. SVI was founded in 2003 to establish an international portfolio of development opportunities. The company also has exposure to the North Sea through its 33% shareholding in another E&P company, Silverstone Energy Limited. SVI has five oil and gas properties in Tunisia: the Cosmos license with a 67% working interest, the Yasmin license with a 100% working interest, the Hammamet Offshore permit with a 50% working interest, the Remada Sud permit with a 71% working interest and the Jenein Centre permit with a 65% working interest. None of these assets are currently producing. The company has proposed a development plan for the Cosmos South field with the aim of producing about 15,000 b/d by 2010. This plan envisions:

- the drilling of two production wells and one water-injection well;
- the mobilization of a floating, production, storage and offloading vessel; and
- the installation of subsea equipment and other infrastructure.

Anticipated development impact of the project

The World Bank Group’s (WBG) Country Assistance Strategy Progress Report for Tunisia for the period 2005-08 is aligned with many of the developmental objectives outlined in the Eleventh Development Plan. The WBG aims to strengthen the business environment to support the development of a more competitive, internationally integrated private sector and improve competitiveness of the Tunisian economy; enhance skills and employability of graduates and labor force in a knowledge economy; and improve the quality of social services through increased efficiency of public expenditures. IFC aims to support the country by selectively financing oil and gas companies where IFC has a strong role to play, especially in the areas of financial structuring, long-term financing, development of marginal fields, environmental and social (E&S) sustainability, and corporate governance. The proposed IFC investment is therefore fully consistent with this strategy.

- Development Impact

The project is expected to lead to the further exploration, appraisal and development of domestic natural resources in Tunisia, a critical component to maintain the country’s economic growth. Such activities are important to Tunisia, given that it is not endowed with large quantities of hydrocarbon resources vis-à-vis its larger neighbors and is today a net importer of hydrocarbons.

Benefits to government. The project is expected to provide the government with revenues from SVI’s operations, through the collection of a 2-15% royalty and a 50-75% profit tax (under IFC’s base case, the net present value of the total payments to the government is expected to be about US$85 million by 2012). The Company will also have an obligation to sell 20% of its oil production to the local market at a 10% discount to international prices.

Generation of new employment opportunities. Approximately 20 direct full-time positions are expected to be created by 2011. This number is expected to increase following the phased development of SVI’s other Tunisian properties. Furthermore, an additional benefit through the use of local and regional contractors during drilling operations is expected.

Benefits to local communities and national and regional companies. Tunisia has adequate repair and refurbishment facilities for large machinery. The project aims to make use of local industry to the extent possible and to source consumables from national and regional companies.

Support the development of junior E&P companies. Most companies active in Tunisia today are junior international and local operators with limited financial resources. Given the country’s lack of prospectivity, this trend is not expected to change. Therefore, the support of such junior companies to develop marginal fields is important for the upstream industry.

IFC plans to monitor during supervision, the amount of payments to the government, number of full-time positions created by gender and value of purchases from national and regional companies.

Governance risks assessment

The benefits from this project accrue from a variety of sources, including employment, supply linkages and contributions to government revenues. The project’s annual revenue contribution to the government is less than 1% of total government revenues, which accrues entirely to the central government. In its assessment, IFC has considered the value of the project’s benefits and the governance and other risks to these benefits. IFC believes the risks to these benefits not being realized as low. The non-revenue benefits, such as the support of domestic production, the creation of employment opportunities and the purchase of local goods and services, are unlikely to be impacted by weak governance. On balance, given the governance context, the expected development impact and the projected benefits, IFC believes that this is a project which it should support.

IFC's expected development contribution

Provide long-term debt and equity financing, and mobilize debt from other sources. The proposed IFC investments will provide long-term debt and equity financing to an offshore development. Offshore projects entail a higher degree of technical and completion risk vis-à-vis onshore projects and therefore require conservative capital structures (higher percentage of equity financing). While investors remain attracted to natural resource opportunities, their focus has shifted to companies that offer a balanced asset portfolio, particularly those with producing assets, and that demonstrate real progress in the advancement of their operations. Therefore, equity financing has become more challenging for junior companies without balanced portfolios or those not funded to first oil/gas.

Develop a social, environmental, occupational health and safety management system. IFC will assist SVI in developing a social, environmental, occupational health and safety management system (SEHS Management System). This SEHS Management System will allow the Company to manage the operations of each property with a consistent approach. These procedures will also include the development of action plans to address current and potential E&S issues.

Provide stamp of approval and establish long-term partnership. SVI is a private junior oil and gas company with the intent of listing itself on an international stock exchange. IFC’s reputation for undertaking comprehensive assessments of companies in which we invest is expected to provide credibility to SVI’s listing process. The company wishes to enter into a long-term partnership with IFC to prepare it for a listing and to enhance its existing corporate governance systems and E&S policies and procedures to international standards.

Environmental and social issues - Category B

This is a Category B project according to IFC’s Procedure for Environmental and Social Review of Projects because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. The review of this project comprised an appraisal of the project’s technical, environmental and social information, visiting some of the key oil and gas operations in Tunisia, as well as interviews with company managers and operations’ personnel.

The information about how potential impacts of the project and how they will be addressed by the company is summarized in the Environmental and Social Review Summary and in the Action Plan agreed with the client.

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