the ras laffan project
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A Global Energy StrategyThe Ras Laffan Project
Finance 570 – Spring ‘09Dr. Joe Greco
California State University, Fullerton
Present by:Mark Skrenes
Chris McMartinEduardo Gutierrez
Trung NguyenChun Lin 1
About Us• We are the financial analysts at Broadway Value and
Growth Fund
• Our objective is to find investments with an attractive risk vs. reward profile
2
Project Background• A liquefied natural gas (LNG) joint venture
• Exclusive rights to the world’s largest undeveloped natural gas reserve 6,000 square kilometers 9% of the world’s proven reserve
• A 30-year, $3.75 billion budgeted project
• Already have committed buyer (Kogas)
3
LNG• A clean alternative energy source
• Made by freezing natural gas to -2600F, reducing it to a liquid 1/600th of its original volume.
• Stored under pressure and can be transported safely worldwide via tanker
• LNG facilities are cost intensive
4
LNG
5
The LNG Industry• Most LNG is sold to utility companies
• Utility companies need a stable LNG supply to support electrical generation and/or natural gas delivery
• LNG demand growth rate:• Worldwide: about 3% a year since 1980• Japan: about 6% a year since 1980• Korea: over 20% a year since 1987
6
The LNG Industry• There is no spot market for LNG • Pricing is determined using the market prices for
competing commodities (e.g. oil)
• Comparable LNG prices for delivery to Japan & Korea
7
Borneo $3.20/MMBTUAustralia $4.60/MMBTUAlaska North Slope $4.80/MMBTUIndonesia (Natuna) $5.90/MMBTURas Laffan $3.88/MMBTU
Project Status • Construction is underway
• Contracts were awarded to top-notch contractors at low cost
• Issuing bonds to finance the project• $400 mil. mature in 2006 at 7.6%• $800 mil. mature in 2014 at 8.3%
8
Equity Investors (30%)State of Qatar
Qatar General Petroleum
Ras Laffan LNG Co.
Mobil Corporation
Mobil QM Gas
(fully-owned)
(66.5% ownership) (26.5% ownership)
10
$704M $302M
(fully-owned)
Creditors (70%)Franc
e ECA
Commercial Banks
Bonds Due 2006
11
Italy ECA
U.K. ECA
U.S. ECA
Japan ECA$764M
$383M
$400M
Bonds Due 2014$800M
Major Customer
(35% ownership)
Republic of Korea
Korea Electric
Power Corp.
Korean Municipaliti
es
Korea Gas Corporation
(51% ownership) (50% ownership) (15% ownership)
12
Product Flow
Ras Laffan Facilities
Korea Electric Power Corp.
QatarGas LNG Tanker Terminal
KoGas LNG Tanker Fleet
Korean Homes and Businesses
North Field Gas Reserves (Qatar)
KoGas LNG Tanker Terminal (Korea)
13
(note - QatarGas ownership: Qatar 88%, Mobil 12%)
Cash Flows
Commercial BanksRas Laffan
Trust (New York)
Mobil Corp (Debt Facility)
Export Agency Credit Facilities
(5)
(“take or pay” guaranteed)
Bond Trustee
Bond Holders
Ras Laffan LNG Co.
14
Delivery Timeline
4.8 MMTA/year from 2002
0.6 MMTA in 1999
15
Major Alternatives
17
Invest
Not Invest
Our Decision Criteria
• Proven Commodity• Vested Project Sponsors• Strong Demand• Well-structured Project• Well-mitigated Risks• Risk Premium
18
Basic Issues
Force Majeure
Risk
Qatari Legal
System
Infrastructure
Default Risk
Low
Low
High
High
Importance
Urgency
19
Immediate Issues
Foreign Exchange Risk
Joint Venture
Risk
Oil Price Cash Flow
Low
Low
High
High
Importance
Urgency
20
Default Risk
Default Risk
Regional InstabilityProduction Capacity
Breach of ContractNo Perfected Interest
21
Basic Risks Mitigation
• Force Majeure– Qatar dependent on U.S. military support– Transportation – no tanker ever lost at sea, proven
transportation methods
23
Basic Risks Mitigation
• Qatari Legal System– Off-shore New York Trust account held by Credit Suisse
24
Basic Risks Mitigation
• Infrastructure– Currently on schedule – Experienced, Leading international construction team– Mobil human capital– Proven technology– 5 year natural gas production history
25
Basic Risks Mitigation
• Default Risk– KoGas owned 50% by Republic of Korea, 34.7% by Kepco– Need to insure reliable and continuous supply as its
needed for power generation– Korea greatly expanding LNG consumption– Vested interest by project sponsors, ECAs– Both customer and supplier have invested Billions – Intercreditor Protection Agreements
26
Immediate Risks Mitigation
• Foreign Exchange Risk– If Korean Won depreciates against the U.S. Dollar, utility
prices can be raised to cover U.S. dollar payments
27
Immediate Risks Mitigation
• Joint Venture Risk– Mobil strategic objective is to increase its LNG market
share– Qatar is seeking to diversify its economy– Huge capital investments by all parties in Billions of U.S.
Dollars
28
Immediate Risks Mitigation
• Oil Prices– Minimum quantity SPA– Mobil $200 million loan fund
29
Immediate Risks Mitigation• Cash Flow
– Project is strategically important to all parties– Take or Pay SPA (SPA becomes a bankable asset)– Long-term contract of up to 25 years– Debt Service Coverage ratio is strong even if oil prices
fall– Mobil Experience– Increased quantities purchased by Kogas result in
economies of scale
30
Projection - Reduced Market Price2001 2002 2003 2004 2005 2006 2007 2008
Price $2.48 $2.53 $2.58 $2.63 $2.69 $2.74 $2.79 $2.85
Revenue
$645.60
$811.60 $825.80 $838.40 $855.50 $867.50 $881.40 $899.30
Cash Flow
$295.34
$527.30 $533.89 $529.60 $545.19 $552.25 $544.04 $561.28
Debt Coverage Ratio
1.16 1.30 1.36 1.40 1.49 1.56 2.02 2.14
31
Our Decision Criteria
» Proven Commodity» Vested Project Sponsors» Strong Demand» Well-structured Project» Well-mitigated Risks» Risk Premium
33
Conclusion• Object of the project: North Field
• Sponsors of the Project
• Kogas
• Long term supply & Purchase Agreement
• Demand for LNG
34
Conclusion• Security Trust
• Intercreditor Protection Agreements
• Contractor for the project
35
ConclusionInherent Risks
• Geopolitical location of Qatar• Qatari Legal System• Breach of contract by Kogas• Expose to currency risks• Contractual Incompleteness
36
Bonds Comparison
37
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080
1
2
3
4
5
6
7
8
Interest rate comparison10 year term
T BondRass Laffan Bond
Source: Treasury Department
Bonds Comparison
38
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080
1
2
3
4
5
6
7
8
9
Interest rate comparison 20 year term
T BondRass Laffan Bond
Source: Treasury Department
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