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(c) V.E. Eromosele Nigerian Nat Petroleum Corp 1 Raising Finance for African Energy Projects Lessons from Nigeria Victor E. Eromosele General Manager –

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Presentation on theme: "(c) V.E. Eromosele Nigerian Nat Petroleum Corp 1 Raising Finance for African Energy Projects Lessons from Nigeria Victor E. Eromosele General Manager –"— Presentation transcript:

1 (c) V.E. Eromosele Nigerian Nat Petroleum Corp 1 Raising Finance for African Energy Projects Lessons from Nigeria Victor E. Eromosele General Manager – Finance (NAPIMS) Nigerian National Petroleum Corporation UNCTAD 10 th African Oil & Gas Trade & Finance Conference Algiers, Algeria 3 April 2006 NOT AN OFFICIAL UNCTAD RECORD

2 2 (c) V.E. Eromosele Nigerian Nat Petroleum Corp Africa and World Oil In the decade to 2004, Africa contributed 27.5 per cent to the increase in world oil reserves In the decade to 2004, Africa contributed 27.5 per cent to the increase in world oil reserves Although Africa accounts for 11.4 per cent of world oil production, it recorded a 32 per cent growth in production over last decade compared with world’s average of 20 per cent Although Africa accounts for 11.4 per cent of world oil production, it recorded a 32 per cent growth in production over last decade compared with world’s average of 20 per cent Nigeria, Algeria, Libya and Angola account for 76 per cent of Africa’s oil production Nigeria, Algeria, Libya and Angola account for 76 per cent of Africa’s oil production Oil from ageing fields and new deepwater terrains pose unusual challenges and require big budgets Oil from ageing fields and new deepwater terrains pose unusual challenges and require big budgets

3 3 (c) V.E. Eromosele Nigerian Nat Petroleum Corp Africa and World Gas Although Africa accounts for 7.8 per cent of world natural gas reserves, it supplies 20 per cent of world LNG Although Africa accounts for 7.8 per cent of world natural gas reserves, it supplies 20 per cent of world LNG Nigeria and Algeria by far top the gas reserves African league Nigeria and Algeria by far top the gas reserves African league The same is true of LNG supplies: Algeria is a world leader in fourth position and Nigeria is sixth The same is true of LNG supplies: Algeria is a world leader in fourth position and Nigeria is sixth With Nigeria LNG Trains 4 and 5 commencing operations since fourth quarter 2005 and exporting since first quarter, Nigeria’s position is soon to change With Nigeria LNG Trains 4 and 5 commencing operations since fourth quarter 2005 and exporting since first quarter, Nigeria’s position is soon to change Next to Qatar, Nigeria LNG is the world’s second fastest growing Next to Qatar, Nigeria LNG is the world’s second fastest growing

4 4 (c) V.E. Eromosele Nigerian Nat Petroleum Corp Nigeria: Financing Energy Growth Some $11bn would be needed for seven LNG trains to be installed in Nigeria by three entities in the next six years. The entities are Bonny-Island based Nigeria LNG, Brass LNG and Olokola LNG Some $11bn would be needed for seven LNG trains to be installed in Nigeria by three entities in the next six years. The entities are Bonny-Island based Nigeria LNG, Brass LNG and Olokola LNG NNPC projects that $34bn will be invested in Nigeria’s oil-related projects in the three years to 2008 NNPC projects that $34bn will be invested in Nigeria’s oil-related projects in the three years to 2008 NNPC would through budgets and ‘carry arrangements’ fund part of this requirement. Majors would fund their share and invest in assets developed under PSCs. Where does the balance come from? NNPC would through budgets and ‘carry arrangements’ fund part of this requirement. Majors would fund their share and invest in assets developed under PSCs. Where does the balance come from? Third-party financing, with improved terms Third-party financing, with improved terms

5 5 (c) V.E. Eromosele Nigerian Nat Petroleum Corp Nigerian Energy Projects find Finance Between 2002 and 2005, Nigeria has raised more than $3.3bn in financing four energy-related projects Nigeria LNG award-winning 2002 deal opened the flood-gates Varied markets have been tapped: export credit guarantees, international and local banks and multilateral and bilateral financial institutions

6 6 (c) V.E. Eromosele Nigerian Nat Petroleum Corp Case 1: Nigeria LNG Trains 4&5 (2002) Raised: $1,060 million Senior debt for NLNG Trains 4&5 expansion in Bonny Island Sources and structure: Export credit guarantee cover $620m 19 international banks (uncovered) $180m 6 Nigerian banks $160m African Development Bank $100m Tenor: 6 to 8 years (door-to-door) Gearing: D/(D+E): 50 percent (approx) ECAs: ECGD of UK, SACE of Italy, US Exim and NCM of Holland Key features: Strong sponsors (NNPC, Shell, Total and ENI). Brown field approach ensured high coverage ratios. Non-recourse. No completion guarantees and World Bank negative pledge-compliant. Credit worthy off-takers and gas suppliers. Offshore accounts.

7 7 (c) V.E. Eromosele Nigerian Nat Petroleum Corp Case 1: Nigeria LNG Trains 4&5 (2002) Success Factors Although extremely complex, well-structured to cover all creditor concerns and mitigate identified risks Lenders took comfort from seniority over existing shareholder loans and ‘brown- field’ approach, which improved cover ratios 59 per cent of uncovered $440 million portion provided by African sources: ADB and 6 local banks: “charity begins at home” Project economics was sound and technology tried and tested Underlying contracts were very bankable

8 8 (c) V.E. Eromosele Nigerian Nat Petroleum Corp Case 2: BGT LNG Vessels (2003) Raised: $460 million Syndicated Loan for four new-build LNG vessels dedicated to NLNG Trains 4&5 Raised: $460 million Syndicated Loan for four new-build LNG vessels dedicated to NLNG Trains 4&5 Sources and structure: Sources and structure: 19 international banks (uncovered) $455m 19 international banks (uncovered) $455m 1 Nigerian bank $5m 1 Nigerian bank $5m Tenor: 13 years (door-to-door) Tenor: 13 years (door-to-door) Gearing: D/(D+E): 66 percent (approx) Gearing: D/(D+E): 66 percent (approx) Key features BGT is shipping subsidiary of Nigeria LNG, which has strong sponsors and transaction builds on previous successes BGT is shipping subsidiary of Nigeria LNG, which has strong sponsors and transaction builds on previous successes Longest tenor ever for Project with element of Nigerian risk Longest tenor ever for Project with element of Nigerian risk Attracted both project finance and shipping banks Attracted both project finance and shipping banks

9 9 (c) V.E. Eromosele Nigerian Nat Petroleum Corp Case 3: NNPC-Mobil NGL-II (2004) Raised: $1,275 million debt for NNPC-Mobil NGL- II project using novel forward sale arrangement (FSA) and special purpose vehicle (SPV) Sources and structure: US OPIC cover $325m Credit Suisse First Boston- uncovered $250m 4 Nigerian banks (uncovered) $50m Exxon Mobil (Co-lending) $650m Tenor: 12 years (door-to-door) Gearing: D/(D+E): 87 percent (approx) The US Bilateral: Overseas Private Investment Corporation provided cover Key features: Strong sponsors (NNPC, Exxon Mobil and Mobil Producing Nigeria). First major joint venture structured financing to benefit from FSA. Cash flow based security. Few financing parties. Brown field approach. Sponsor lending on pari-pasu basis. Closed within one year.

10 10 (c) V.E. Eromosele Nigerian Nat Petroleum Corp Forward Sale Structure

11 11 (c) V.E. Eromosele Nigerian Nat Petroleum Corp Case 3: NNPC-Mobil NGL-II (2004) Success Factors Few financing parties ensured fast-track execution of transaction and less protracted negotiations Co-lending ensured commitment of other lenders NNPC and Nigerian government support ensured that “true sale” opinion was accepted for the novel FSA structure Creativity of financial adviser and willingness to try new approach Ability to convince market that it really does not need hard asset security, resulting in a paradigm shift Sound economics of project and positive environmental impact ensured that deal was done with a structure that did not breach World Bank negative pledge

12 12 (c) V.E. Eromosele Nigerian Nat Petroleum Corp Gas Attraction Gas-related projects are amenable to financing Gas is considered as an environmental- friendly, clean and efficient energy source, hence the projects do not attract undue NGO attention Decision is easier as choice is usually between wasting a valuable asset and monetising it with environmental benefit such as gas flaring reduction LNG business is characterised by long-term sale and purchase agreements (SPA) with credit worthy off-takers: this provides lenders with significant comfort in the event of default LNG market and technology are fast- maturing, resulting in “commoditisation” and international bank markets are now familiar Unlike power projects, no LNG project financing to date has recorded a significant default Gas-prices have stabilised on the high end of the scale both in the US and in Europe Several alternatives exist in financing LNG vessels

13 13 (c) V.E. Eromosele Nigerian Nat Petroleum Corp Case 4:NNPC-MPN Satellite Oil Field - SOF1 (2005) Raised $600m using FSA/SPV structure for the first time in Nigeria oil industry Sources and structure Syndicate of International Bank $270m 5 Nigerian Banks $90m Exxon Mobil Co-lending $240m Success factors Creative financial adviser, Use of FSA, NNPC and Nigerian govt acceptance of structure, sponsor co-lending, no hard asset security Unique Feature: Use of Nigerian banks to fund two primer fields to secure cheap financing for three phase-1 satellite oil fields

14 14 (c) V.E. Eromosele Nigerian Nat Petroleum Corp Re-cap: Successful Energy-related Deals Oil: $600m NNPC-MPN Satellite Oil Field-I (SOF1) closed Dec 2005 Oil: $600m NNPC-MPN Satellite Oil Field-I (SOF1) closed Dec 2005 LNG: $1.06bn NLNG+ closed Dec 2002 LNG: $1.06bn NLNG+ closed Dec 2002 Gas: $1.275m NNPC-MPN NGL-II closed Sep 2004 Gas: $1.275m NNPC-MPN NGL-II closed Sep 2004 Gas Transport: $460m BGL vessels closed Mar 2003 to be refinanced 2006 Gas Transport: $460m BGL vessels closed Mar 2003 to be refinanced 2006 Power: $450m Okpai IPP (Equity funded by NNPC/Agip joint venture) commissioned 2005 Power: $450m Okpai IPP (Equity funded by NNPC/Agip joint venture) commissioned 2005

15 15 (c) V.E. Eromosele Nigerian Nat Petroleum Corp Nigerian Energy-related Deals waiting LNG: Brass LNG in phase 2 financial advisory post- FEED LNG: Brass LNG in phase 2 financial advisory post- FEED LNG: Olokola LNG financial advisers changing batons LNG: Olokola LNG financial advisers changing batons Gas: NNPC-Shell et al considering Gbaran-Ubie gas supply to NLNG for external financing Gas: NNPC-Shell et al considering Gbaran-Ubie gas supply to NLNG for external financing Oil & Gas Services: Innovative $300m Nigerian Content Support Fund (NCSF) under development Oil & Gas Services: Innovative $300m Nigerian Content Support Fund (NCSF) under development

16 16 (c) V.E. Eromosele Nigerian Nat Petroleum Corp Learning Lessons for future Success Simplicity: Future LNG financing, even green-fields, need not be as complex as NLNG+. Need to find easier ways to mitigate risks. Fewer agreeable parties and sympathetic lawyers help deals. Simplicity: Future LNG financing, even green-fields, need not be as complex as NLNG+. Need to find easier ways to mitigate risks. Fewer agreeable parties and sympathetic lawyers help deals. Speed: NNPC-MPN NGL-II project and lately, the NNPC-MPN Satallite Fields project suggest that deals can be started and finished within a year. Can lawyers shorten the list of Condition Precedents (CPs) for drawdown? Speed: NNPC-MPN NGL-II project and lately, the NNPC-MPN Satallite Fields project suggest that deals can be started and finished within a year. Can lawyers shorten the list of Condition Precedents (CPs) for drawdown? Soft Market: We must take advantage of an international bank market that is now keen about Nigeria and extract better terms e.g. NNPC majority holding (as was done in the Satellite Fields deal) Soft Market: We must take advantage of an international bank market that is now keen about Nigeria and extract better terms e.g. NNPC majority holding (as was done in the Satellite Fields deal) Pricing: With US’ One-year LIBOR at 5.1 per cent, we must in future deals strongly negotiate down “Nigerian risk premium,” particularly after settling Paris Club and BB _ rating Pricing: With US’ One-year LIBOR at 5.1 per cent, we must in future deals strongly negotiate down “Nigerian risk premium,” particularly after settling Paris Club and BB _ rating Tenor: For the right projects, tenors of up to years are achievable for Nigerian risk. Tenor: For the right projects, tenors of up to years are achievable for Nigerian risk. Charity begins at home: With 25 large Nigerian banks, better, bigger deals can be done Charity begins at home: With 25 large Nigerian banks, better, bigger deals can be done

17 17 (c) V.E. Eromosele Nigerian Nat Petroleum Corp Final Thought Lenders to gas and power projects would always seek all the comfort they can get. Remember: “A bank is a place, That will lend you money if You can prove you don’t need it” -Bob Hope (1959) The burden of proof is squarely ours. May we rise to the challenge by devising better templates of success. The burden of proof is squarely ours. May we rise to the challenge by devising better templates of success.

18 18 (c) V.E. Eromosele Nigerian Nat Petroleum Corp


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