Suriname wants to leverage future oil royalties to extend debt repayment deadlines

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Suriname is moving to use future oil royalties as collateral to manage about US$314 million of its debt. 

The country has crafted oil-linked securities that hinge on royalty revenues to be generated from its first offshore oil development project in Block 58, according to a PRNewswire release published on the Republic’s behalf. By doing so, Suriname is looking to, in effect, extend its debt repayment deadlines to coincide with the delivery of these royalties.

The future oil royalties in question are expected to come from Block 58. The country has long awaited the project, especially while watching neighboring Guyana’s economic fortune transform due to massive oil discoveries in the Stabroek block. TotalEnergies is the operator of Block 58, with APA Corporation as its 50% partner in this venture. The two companies plan to utilize a floating production, storage, and offloading (FPSO) vessel that can produce 200,000 barrels per day (bpd). The companies aim to tap into massive oil finds in the Sapakara South and Krabdagu fields, which are estimated to hold approximately 700 million barrels of oil.

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The mechanics of the oil-linked securities are specifically designed to manage Suriname’s debt burden. After reaching a “one-off” floor of US$100 million in oil royalties, 30% of additional government royalty revenues from Block 58 will be allocated to the holders of the oil-linked securities, the PRNewswire release noted. Payments under these securities would be made on a quarterly basis. Moreover, the oil-linked securities have an expiration date of December 31, 2050. This would effectively extend the country’s debt repayment deadlines far into the future, as the eligible bonds the government wants to restructure are due in 2023 and 2026.

The debt restructuring terms were guided by the International Monetary Fund (IMF) under an economic recovery program for Suriname.

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The TotalEnergies-led oil development project stands to be a boon for Suriname’s economy. As the country moves closer to the anticipated first oil in 2028, the financial engineering around the oil-linked securities provides Suriname with a roadmap for managing part of its debt by leveraging its fortune in a high-value industry. 

However, the project is still in the early planning stages. TotalEnergies is expected to submit a development plan to regulators for review next year, with the expectation that there will be approval and a final investment decision (FID) by the end of 2024. The expected first oil year of 2028 is contingent on these submission and approval timelines.

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