indonesia project financing

Investm

ent

Bankin

g

Gas Project Financing in Indonesia

Investm

ent

Bankin

gIndoGAS 2011

Jakarta, 27 January 2011

SMBC Overview

Global Arranger of the Year 2009 SMBC

� Asian bank with global presences

� Dedicated to Indonesia and project finance

� Operates in Indonesia via BSMI

� 20+ years supporting the LNG Industry

Copyright © 2011 Sumitomo Mitsui Banking Corporation. All Rights Reserved. 1

� 20+ years supporting the LNG Industry

� More than 80 project finance bankers in Asia

� Dedicated oil & gas team in Singapore

� Consistently top 10 globally in project finance

Some gas projects participated by SMBC

IndonesiaIndonesiaIndonesiaIndonesia

West Java FSRUWest Java FSRUWest Java FSRUWest Java FSRU

Financial Advisor to Sponsors

2011 (Ongoing)2011 (Ongoing)2011 (Ongoing)2011 (Ongoing)

IndonesiaIndonesiaIndonesiaIndonesia

BPMIGAS BPMIGAS BPMIGAS BPMIGAS TANGGUH LNGTANGGUH LNGTANGGUH LNGTANGGUH LNG

US$3.5 Billion

Asia Pacific Petrochemical Deal of the Year 2006

Financial Advisor Mandated Lead Arranger

2006200620062006

PNG LNGPNG LNGPNG LNGPNG LNG

US$ 4.6 billion

JBIC / NEXI Agents & Mandated Lead Arranger

2009200920092009

Papua New GuineaPapua New GuineaPapua New GuineaPapua New Guinea

GUANGDONG GUANGDONG GUANGDONG GUANGDONG

LNG SHIPPINGLNG SHIPPINGLNG SHIPPINGLNG SHIPPING

Financial Advisor Financial Advisor Financial Advisor Financial Advisor

to Sponsorsto Sponsorsto Sponsorsto Sponsors

2006200620062006


2006200620062006 2009200920092009

US$ 400 millionUS$ 400 millionUS$ 400 millionUS$ 400 million

Latin American Deal of the Year 2008

Joint Bookrunner

2008200820082008

PeruPeruPeruPeruRussiaRussiaRussiaRussia

SAKHALIN IISAKHALIN IISAKHALIN IISAKHALIN II

US$5.3 billion

Mandated Lead Arranger

2008200820082008

YemenYemenYemenYemen

YEMEN LNGYEMEN LNGYEMEN LNGYEMEN LNG

US$2.8 billion

Mandated Lead Arranger

2008200820082008

QatarQatarQatarQatar

NAKILAT INCNAKILAT INCNAKILAT INCNAKILAT INC

QATAR GAS QATAR GAS QATAR GAS QATAR GAS TRANSPORT CO LTDTRANSPORT CO LTDTRANSPORT CO LTDTRANSPORT CO LTD

US$4.74 billion

Middle East LNG Deal of the Year 2006

Sole Financial Advisor

2006200620062006

2006200620062006

SMBC Indonesian projects

Project SMBC Role

West Java FSRU Financial Advisor to sponsors (ongoing)

Greenfield LNG Financial Advisor to sponsors (ongoing)

Indonesia IPP Financial Advisor to a bidder (ongoing)

Indonesia IPP Financial Advisor to a bidder (ongoing)

Wampu Hydro Financial Advisor (ongoing)

Tanjong Jati A Financial Advisor


Paiton 3 MLA, Insurance Bank

Cirebon MLA, Documentation Bank, KEXIM Coordinating Bank

PT Asahimas Financial Advisor

Tanjung Jati B expansion MLA

Tanjung Jati B Financial Advisor/MLA

Batam IPP Financial Advisor

PT Jawa Power MLA

Paiton 7 / 8 MLA

Financing Gas Projects: Indonesia Big picture

1. Importance of the value chain = gas needs contracted buyers

2. Project economics = gas / LNG prices

3. Credit strength of the gas buyers = export vs. domestic markets

4. Regulatory environment = TBS, DMO and cabotage

Copyright © 2011 Sumitomo Mitsui Banking Corporation. All Rights Reserved.

5. Evolving technology = FLNG and FSRU

6. Local contents = Local banks and local contractors

The gas value chain: lenders considerations

� Elements of gas projects are difficult to finance in isolation

� All participants in the chain rely on same cash flow

� Every segment of the gas chain has different challenges

Indonesian LNG Chain


1. Upstream 2. Liquefaction 3. Shipping 4. Regasification

� Gas Reserves

� Terms of GSA

� Ownership rights

� Domestic obligations

� Business model:

i) integrated

ii) tolling

iii) non integrated

� Conventional vs. FLNG

� Indonesian cabotage

� Shipyard

� Local Content

� Ownership vs. lease of

LNG vessels

� Choice of business model

(merchant vs. tolling)

� Source of LNG

� Gas price and demand

� FSRU vs. onshore regas

Favorable macroeconomics for Indonesia

Indonesia 10 years Credit Default Swap Global gas price vs oil price outlook


Source: E-ONSource: Bloomberg

Cost of raising debt in US Dollar

4.7%

6.2%

4.6%

Jun 2008

Margin @ 1.5%Cost of Debt to Borrowers

Banks Margin

Note – Increase in banks funding cost offset by reduction in base USD rates. In summary, USD interest rates are still relatively cheap


1.6%

Oct 2010

Margin @ 3.0%Base USD 5 yrs Rates

June

2008

October

2010

Source: Bloomberg and SMBC estimates

Sources of Capital: Upstream Project

� Traditional approach for independent E&P is Reserve Base Lending

� Reserve (1P / 2P) and gas prices key decision factors for lenders

� Financial strength of upstream sponsor and gas buyer

Upstream Project Cost (100)


Project Finance Loans (50-70) Equity (30-50)

BanksMultilaterals or Export

Credit AgenciesSponsors

8

Guarantees

Sources of Capital: Integrated LNG project

� The capital structure would normally involve 50 to 70% debt from various sources commercial

banks, ECA/MLA, sponsor senior loans and in some occasions, project bonds

LNG Project Cost (100)

Debt to Equity Ratios from 50:50 to 70:30


Project Finance Loans (50-70) Equity (30-50)

Banks Sponsor LoansMultilaterals or Export Credit

AgenciesSponsors

9

Guarantees

LNG Project – Integrated Structure

SINGLE PROJECT COMPANY / BORROWER

� Involve same Sponsors in the Upstream , and Liquefaction facilities for alignment of interests

across the LNG chain

� The Borrower enters directly in the Sales and Purchase Agreement (“SPA”) with the LNG Buyers

� Example: PNG, NWS, QatarGas II, RasGas, Sakhalin II, Tangguh


Upstream Liquefaction Shipping LNG Buyers

LNG Project Co(Borrower - SPV)

LNG SPA (take or pay)

Sponsor B

Sponsor A

LNG Project – Non Integrated Structure

LEGAL SEPARATION UPSTREAM AND DOWNSTREAM

� Different shareholding interests between Upstream & Downstream

� Upstream may involve Govt. entity – potential need for regulatory approval of the GSA

� Examples: Peru LNG, QatarGas, NLNG, Brunei LNG



LNG Plant Co(Borrower)

Sponsor B

GSA

Sponsor A

LNG SPAs (take or pay)

LNG Project – Tolling Structure

SINGLE BORROWER FOR LNG PLANT ONLY

� May have same or different sponsors in the Upstream and LNG plant.

� Well suited for limited recourse financing of LNG plant and is normally used when the

Upstream facilities may be difficult to finance or to maximise debt at LNG plant level

� Tolling counterparty expected to be creditworthy to support limited recourse financing.

� Examples: Bontang, Arun, Egypt LNG



LNG Project Co

LNG SPAs (take or pay)

Sponsors

LNG Plant Co(Borrower)

Tolling Agreement

Floating LNG

60 3

Shell

3.5 ($3bn)

SBM Linde

2.5ConocoPhillips

5.3

< $1000 /TPA(simple)

> $1,000 /TPA(complex)

MTPA

Inpex

4.5 ($10bn)

FlexLNG

1.7(N2 Cycle)

Höegh

1.6-2.0(Niche)

FLNG concepts

� A wide number of early concepts is now reduced to a

few serious ones

� Industry divided between SMALL SCALE (below 3

mmtpa) and LARGE SCALE (3-5 mmtpa)

� Two concepts embodied by FlexLNG and Shell

concepts have different challenges but appears

equally viable


60 3 MTPA

SMALL SCALE LARGE SCALE

FLNG Overview

Location of Stranded Gas Reserves Key Features

� FLNG allows to liquefy natural gas without the

need of onshore infrastructure and pipelines

� Similar to an FPSO project but part of an LNG

chain with its critical aspects and complexities.

Significant capex requirements needed across the

LNG chain

� FLNG is an attractive technical solution for


POSITIVE FACTORS

� Endorsement by majors (PTT, Shell, etc)

� Expected flexible design for potential redeployment

� Reduced infrastructure requirement

� Expected lower environmental impact

� Vessel construction in confined environment

(shipyard)

CHALLENGING FACTORS

� Lack of precedent and untested technology

� Competition for capital with conventional LNG

� Requires ingenuity to arrange financing

� Emergence of unconventional gas (ie. shale, CBM)

� Softening of gas and LNG prices

stranded gas fields in Asia...but there is no

precedent

FLNG Project Challenges

Type of Issue Issue

Project / Commercial Issues 1. Lack of precedent

2. Gas supply (Reserves and Project-on-Project Risk)

3. Ownership of Upstream and FLNG

4. Complex development with multiple interfaces

5. Effective cost control


Financing Issues 6. Mitigation of completion risk

7. Mitigation of operating risk

8. Contract Alignment across the LNG value chain

9. Insurance capacity

10. Optimising funding sources and mix

11. Inter-creditor issues among sources of debt

FLNG Project Structure: Integrated Model

Upstream Co(Borrower 1)

LNG SPA

FLNG Co(Borrower 2)

Charter Contract (with guarantee)

Sponsors Contractor



� Upstream Co and FLNG Co can raise financing jointly

� Sponsor and Contractor alignment, reduces project-on-project risk

� Attractive for contractor which are looking for return upside

(with guarantee)

FLNG Project Structure: FPSO Model

LNG Project Co

LNG SPA

Sponsors

FLNG Co(Borrower)

Charter Contract

Contractor / Operator



� Established bankable structures similar to a tolling arrangement

� Charter guarantee from Sponsors

� Transfer of operating risk via the Charter ContractKto Sponsors?

� Upstream and Liquefaction are finance separately

Floating Regasification Units (FSRU)

1. Business Model = Ownership vs. Lease

2. Allocation of market risk = Contractors pass on risk to regas company

3. Credit risk = Payment obligations of the regas company

4. Regulations = Implications of Indonesian cabotage


Thank You


Luca Tonello

First Vice President, SMBC

[email protected]

indonesia project financing

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