Energy Project Finance - Oil, Gas & Power

Course overview Participants in this program will learn how to structure upstream and down stream oil and gas projects including field development, rigs, platforms, pipelines, and other transportation infrastructure. They will also see LNG, fertilizer transactions, and power deals. By the program’s conclusion they will have developed a framework for recognizing and analyzing qualitative and quantitative project risks when financing green field projects as well as facility upgrades in the energy sector. They will understand how excel models are use to assess project debt capacity, return on investment, and other metrics common to attractive deals. Numerous examples of projects from around the world are employed throughout the course to ensure understanding and application of concepts. Lectures include many recent examples of structured financing attractive to banks, bond investors, lessors and Islamic investors. Applications of energy related derivative instruments to enhance financing are also described. Finally, careful attention is paid to fund providers and credit enhancers such as Export Credit Agencies and International Financial Institutions (IFIs) like IFC, Islamic Development Bank, European Investment Bank, and other Bi-laterals. Many of these official players are today strenuously engaged in helping project developers and financiers weather market upheavals. The program’s fifth day session is a stand-alone cash flow modeling workshop. Using excel software, participants create a model for an LNG Plant to test for project debt capacity as well as return on investment. You will cover: Project Finance in Today’s Challenging Markets Structuring Large Oil and Gas Field Development Projects Reserve-Based Finance Financing Pipelines, Oil Rigs, Platforms, and Other Infrastructure LNG and Fertilizer Plants Power Project Finance ‘Green’ Energy Developing Pro Forma Estimates and Cashflow Models Working with Banks and Other Debt Providers Understanding Key Legal Risks in Projects Official Providers of Funds and Credit Support (Export Credit Agencies, Development Banks and Others) Managing Price Volatility in Energy Deals Who should attend? The course will be of value to professionals in the following areas: All financiers involved in project finance, investment analysis and syndicated lending Government and parastatal executives involved in sponsoring/assessing project finance deals Institutional Bankers Corporate Bankers Commercial and Investment Bankers Project Sponsors Development Banks Contractors Accounting and Legal Practices Project Consultancies Export Credit Agencies
Day 1 Themes: Energy markets; varying approaches to financing different types of energy projects; qualitative and quantitative analysis; cash flow modeling Oil, gas and power project finance Changing markets for energy transactions Structuring and sources of finance Limited recourse vs. balance sheet deals Types of projects and their comparative complexity Identifying and allocating risks - Pipelines - Field development and platforms - Production facilities - Refineries and petrochemical plants - Electricity projects (BOO, BOT, BOOT, BLT, etc) Key players and their roles Steps/timeline in a project financing Sources of finance: a financing checklist Domestic borrowing Loans from international banks International capital markets: eurobonds, private placements Export credit support for loans and bonds Specialized agencies: IFC and others Leasing Equity from project sponsors and others Derivatives usage Risk identification and allocation building a risk matrix Risk allocation between sponsors, creditors and others Technology and construction/completion Reservoir/reserves risks Feedstock risk Sales and off-take, operation and maintenance Abandonment/decommissioning Environmental considerations Political risk and regulatory issues Quantitative analysis: designing proforma energy project models Approaches to modeling for oil and gas transactions Developing an appropriate base case / running sensitivities and scenarios Focus of the debt providers: DSCR, loan life, and other key ratios Sizing debt in different types of projects Debt to equity balances Sponsor and key stakeholder perspectives Measures of investor return Case study: Financing an ammonia plant Participants break into small groups to evaluate the security package in this gas processing plant. A computer simulation quantifies risk assessments. Day 2 Themes: Legal issues to consider in accessing finance; bank markets; credit enhancement with ECAs; upstream oil and gas field development; reserve-based facilities Discussion: Fertilizer case Legal issues in energy finance Legal environment for energy deals Commercial points and legal points in various project structures: Incorporated and unincorporated joint ventures Partnerships and limited partnerships Separate and common financing in natural resources projects Key contractual agreements and structuring considerations Domestic and international bank finance Club Loans and Bank Syndicates: Primary and Secondary Distribution Pricing, Flexibility, Timing in the Sector and Today What Security Do Banks Want? Offshore Accounts and Trustees Mortgages on Fixed Assets /Contract Assignments Swap Requirements and Other Derivatives Usage: Interest Rate and Currency Recent Structures; Case Examples from Africa and the Middle East Sources of risk support: export credit agencies (ECAs) Official guarantees, insurance and funding programs for energy transactions Incentives in ECA programmes: which are most popular today? Costs and availability Upstream oil and gas: oil and gas exploration, development and production Oil production: process depletion and enhanced recovery Major systems and types of drilling equipment Offshore oil platforms in shallow and deep water Reserve-based finance Development finance vs. reserve-based lending and borrowing bases Mezzanine funding Emergence of “North Sea” structures and reserve categories (P1, P2, P3) Common measures: (loan life cover ratio (LLCR), project life cover ratio - (PLCR), reserve tail Case study: Financing a condensate field development Participants break into small groups to evaluate the security package and forecast cash flows for an upstream condensate field development project. Day 3 Themes: Refineries, transportation, shipping; alternative sources of risk support and finance; capital markets Discussion: Upstream oil field development ‘Midstream’: refineries Understanding the process: from topping refineries to complex crackers Financing: greenfield vs. expansion Refinery market analysis Cash flow volatility Operational risk mitigation Tolling structures Debt/equity balancing Repayment profile optimization Distribution controls and information/other covenants Case studies: Colombia, Vietnam Oil and gas transportation and shipping Logistics: pipelines, shipping, storage Crude gathering and transmission Refined products transmission lines Tanks, floating storage and caverns Types of tankers - AFRA classes (average freight weight assessment) ULCC to tanker lightering Sources of risk support: development banks (IFIs) Key IFIs and programmes - World Bank Group: World Bank, IFC, MIGA, ICSID - Other multilaterals: Africa Development Bank, Islamic Development, Inter-American Development Bank etc. - Bilaterals: U.S. OPIC, FMO, Proparco and others Accessing capital markets for projects pre and post completion Capital markets and examples of projects - Rule 144A and eurobond financing - Mezzanine finance - Infrastructure investment funds Rating agency criteria Construction finance vs. operating projects - Greenfield vs. brown field projects Crude oil export receivables securitization Examples: Ras Laffan Qatar, West African crude export sales securitization Case study: Rig finance In small groups participants will assess a proposed bond issuance to refinance a semi-submersible rig conversion. Evaluating operating cashflows. Day 4 Themes: Islamic finance; energy price volatility management techniques; power project financing Discussion: Rig finance Islamic financing alternatives for energy projects Structures:Istisna, Ijara, Sukuk Examples: Petro-Rabigh Saudi Arabia, other Leading equipment Objectives and structures Costs and calculations Applications in energy project finance Managing oil price volatility with derivatives Oil and gas price markets and players Oil and natural gas swaps and options Costs, structures, indices, applications Recent examples of usage Power project financing Constructing a power risk matrix Understanding different types of thermal plants Peakers vs. base-load facilities and power dispatch curves Combining water desalination and electricity production Rating agencies' analytical model Case Study: Financing a thermal power plant Participants will break into small groups to evaluate the security package for this cogeneration plant. A computer simulation is used. Market forces and effect on electrical supply Fragmentation of electricity generation: gencos/transcos/discos Merchant power plants with uncontracted sales or tolling arrangements Renewable energy and bio-fuel plants Comparative costs and “grid parity” Government support schemes for renewable projects Wrap up and self-test Day 5 Themes: LNG project modeling workshop Participants spend a day building a pro forma cashflow model for a liquified natural gas (LNG) facility. They assess a wide range of scenarios in order to test a limited recourse financing package, the project’s debt capacity, and its suitability for investment. Includes discussion of common approaches to modeling was well as Excel, ‘dos’ and ‘dont’s’. Further practical uses for models in negotiations are described. Modeling workshop overview: objectives and approaches Constructing a model / common myths Variations by project type Structuring the model and organizing the data to create a cashflow statement Developing the assumptions page Construction costs and timing Operating cost, plant capacity usage, fixed and variable costs Reinvestment, plant expansion, productivity shifts Financing section Equity first or pro rata Manually designed equity subscription Draw-down of debt linked to specific contracts or expenditures or in a hierarchy Funding the debt service reserve account Developing profit and loss and balance sheet statements Factoring in reserves Considering currencies Tax calculations Ratios and sensitivity analysis: objectives and limitations Measuring debt capacity and investor return Using modelling output for initial project vetting Supporting on-going negotiations Course summary and close