4 1. Project Finance Project Finance: “a non-recourse or limited recourse financing structure in which debt, equity and credit enhancement are combined for the construction and operation, or refinancing, of a particular facility in a capital-intensive industry”Source: An Introduction to Project Finance – Andrew FightProject Finance is particularly suitable for the construction of facilities owned by joint venture partnersips
5 Classical Project Financing 1. Project FinanceClassical Project FinancingSpecial Purpose CompanyEstablished to develop, own & operate an “asset”Limited RecourseCash flow generated from the defined asset is the only source of debt repayment with only limited recourse to the “sponsors”Structured FinancingRisks identified through comprehensive due diligence and mitigated through both contractual structure (construction / operation / supply / offtake/ logistics etc) and asset securityLong Term FinancingProcess can be cumbersome / time consuming but delivers long term (often) leveraged financing
7 Structure of the Oil & Gas Industry 1. IntroductionStructure of the Oil & Gas IndustryExploration & ProductionHigh risk but potentially high valueManufacturingRefining & ProcessingSupply & DistributionBulk trading & transportationMarketingRetail petroleum & petrochemicalsOil ServicesConstruction & contracting
9 2. Liquified Natural Gas - LNG Natural Gas is in the wrong place!The Solution = LNG
10 2. Liquified Natural Gas - LNG Natural gas which has been reduced to a liquid state by cooling it to a sub-zero temperature (-162°C).As the vapour warms to -107°C, it becomes lighter than air and will dissipate. When exposed to atmospheric temperatures and pressures, it vaporizes to about times its liquid volume.Liquefaction process removes the oxygen, carbon dioxide, sulphur compounds, other trace impurities and water.LNG is composed of around 90% methane, along with small quantities of ethane, propane, butane and less than 1% nitrogen.1 million tonnes of LNG = 1.38 bcm or 48.7 bcf or 1.23 mtoe
11 2. Liquified Natural Gas - LNG Brief History1959: 2,000 tonnes of LNG are transported from Louisiana,USA to Canvay Island on the Thames Estuary near London1964: First commercial LNG plant (1 mtpa) established in Arzew, Algeria. CAMEL exports to the UK, France and the USA1965: Canvay Island (UK) receives first LNG from Algeria – transportation provided by 2 purpose-built tankers each holding 12,000 tonnes or 26,335 cum of LNG1969: Japan starts LNG imports from Kenai, Alaska (1.5mtpa – still in operation!)1972: Sales from Brunei LNG commence to Japan1977: Indonesia and Abu Dhabi start LNG exports1979: 15 year SPA between Algeria and UK comes to an end. North Sea discoveries enable the UK to be self sufficient in natural gas1983: Malaysia starts LNG exports to Japan1989: Australia starts LNG exports1997: Qatar Starts LNG exports1998: Trinidad starts LNG exports2000: Oman starts LNG exports
12 2. Liquified Natural Gas - LNG But ……… its expensive.There are 4 main price components of an LNG Project prior to the marketing the gas (i.e. from the gas field to the receiving terminal):Gas Production: From the reservoir to the LNG plant including gas processing and associated pipelines (15-20% of costs).Liquefaction Plant: Gas treating, liquefaction, LPG and condensate recovery. LNG loading and storage (30-45% of costs).LNG Shipping: (10-30% of costs)Receiving Terminal: Unloading, storage, regasification and distribution (15-25% of costs).
14 3. LNG FinancingThe LNG supply chain offers an opportunity to provide financing for one or more segments.Historically, the upstream and liquefaction segments have been treated as “one” project with shipping and regasification financed separately.Each segment has a unique risk, however, each is also dependent on the entire supply chain.
15 3. LNG FinancingIn 2005 there was 142 mtpa of Global LNG export capacity.By 2010 there will be almost 300 mtpa of Global export capacity.The International Energy Agency estimates over $250 billion will be spent by the gas industry over 30 years for LNG projects.Projects usually developed jointly by National Oil Companies with International Oil Companies
16 3. LNG Financing - Methods Main Sources of Debt for LNG Projects include:Commercial BanksExport Credit AgenciesCapital MarketsIslamic FinanceMultilateral/Bilateral AgenciesAll can be provided on a full recourse or limited/non recourse basis
23 4. Case Study – Qatargas II A Joint Venture between Qatar Petroleum (70%) and Exxon Mobil Corporation (30%) for the production and supply of LNG to the United Kingdom, involving:The development of a two train LNG project (including associated onshore and offshore facilities) at Ras Laffan Industrial City, Qatar, for the production and supply of LNG, condensate, propane and butane (the “Upstream Project”);The acquisition of the necessary LNG ships (the “Transportation Project”); andThe development of an LNG regasification terminal at Milford Haven in South Wales (the “Terminal Project”).
24 4. Case Study – Qatargas II Contractual StructureQatargas II sells LNG to South Hook Gas Company pursuant to a 25 year take-or-pay LNG Sale and Purchase Agreement (the “SPA”). The SPA requires Qatargas II to deliver LNG to the regasification terminal in the UK.Regasification of LNG purchased by South Hook Gas Company is undertaken at the Terminal by South Hook LNG Terminal Company pursuant to a 25 year Terminal Capacity Agreement.South Hook Gas sells the regasified LNG to ExxonMobil Gas Marketing Europe pursuant to a 25 year take-or-pay Gas Sale and Purchase Agreement (the “GSPA”).ExxonMobil Gas Marketing Europe is wholly owned by Esso UK Limited (“Esso UK”).
25 4. Case Study – Qatargas II LNG and Gas Sales Agreements
26 4. Case Study – Qatargas II Ownership Structure
27 4. Case Study – Qatargas II The Upstream Project……The largest non-associated gas field in the world
28 4. Case Study – Qatargas II Each of Train I and Train II to have a production capacity of approximately 7.8 million tonnes per annum of LNG - The largest LNG Facility in the world!
29 4. Case Study – Qatargas II The Transportation Project……Dedicated fleet of 8 large LNG (“LLNG”) carriers for each Train, each with a capacity of approximately 200,000 cubic metres.
30 4. Case Study – Qatargas II The Terminal Project……Located on the site of a decommissioned refinery in Milford Haven, Wales, with a protected deep-water harbour.
31 4. Case Study – Qatargas II Contractual Structure
32 4. Case Study – Qatargas II The Finance Plan:Separate and phased financings for each of the Upstream Project, the Transportation Project and the Terminal ProjectThe Upstream Project (US$4,963m)The Transportation Project (US$4,300m)The Terminal Project (£651m)TOTAL COST – OVER US$10bn
33 4. Case Study – Qatargas II The Upstream Project (US$4,963m):Traditional limited recourse Project Financing. Construction is “guaranteed” by the Sponsors. Once Construction Completion is achieved, Lenders take the risk that Qatargas II generates sufficient revenues to repay the debt.Revenues are generated by the sale of LNG to South Hook Gas.
34 4. Case Study – Qatargas II The Transportation Project:Qatar Gas Transport Company (“QGTC”) was established in June to facilitate the transportation of gas from the Qatargas and RasGas projects.Qatargas and RasGas have contracts to supply LNG to Europe and the USA for 25 years, and will lease the LNG tankers from Q-Gas for the duration of those agreements, ensuring a stable revenue stream for the company.QGTC is now the largest LNG shipping company in the world. By , the company is expected to have acquired 77 LNG vessels to transport liquefied natural gas to Europe, Asia and the US.Total debt raised by QGTC specifically for the Qatargas Project totalled US$4.3bn
35 4. Case Study – Qatargas II The Terminal Project (£651m):Typical “tolling” Project Financing. Revenues are generated through the processing of LNG (regasification). Quasi-fixed income stream.
36 Merci de votre attention! 5. Questions ……Merci de votre attention!