The Ras Laffan Project
A Global Energy Strategy
Finance 570 – Spring ‘09
Dr. Joe Greco
California State University, Fullerton
Present by:
Mark Skrenes
Chris McMartin
Eduardo Gutierrez
Trung Nguyen
Chun 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:
• Japan:
• Korea:
about 3% a year since 1980
about 6% a year since 1980
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
Borneo
$3.20/MMBTU
Australia
$4.60/MMBTU
Alaska North Slope
$4.80/MMBTU
Indonesia (Natuna)
$5.90/MMBTU
Ras Laffan
$3.88/MMBTU
7
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
Project’s Structure
9
Equity Investors (30%)
Mobil Corporation
State of Qatar
(fully-owned)
(fully-owned)
Qatar General
Petroleum
$704M
(66.5% ownership)
Mobil QM Gas
(26.5% ownership)
$302M
Ras Laffan LNG Co.
10
Creditors (70%)
$764M
U.K.
ECA
Franc
e ECA
Italy
ECA
U.S.
ECA
$383M
Commercial
Banks
$400M
Bonds Due 2006
$800M
Bonds Due 2014
Japan
ECA
11
Major Customer
Republic of Korea
(51% ownership)
Korea Electric
Power Corp.
(50% ownership)
(35% ownership)
Korean
Municipalities
(15% ownership)
Korea Gas
Corporation
12
Product Flow
North Field Gas Reserves (Qatar)
Ras Laffan Facilities
QatarGas LNG Tanker Terminal
(note - QatarGas ownership: Qatar 88%, Mobil 12%)
KoGas LNG Tanker Fleet
KoGas LNG Tanker Terminal (Korea)
Korea
Electric
Power Corp.
Korean
Homes and
Businesses
13
Cash Flows
(“take or pay”
guaranteed)
Mobil Corp (Debt
Facility)
Ras Laffan Trust
(New York)
Export Agency
Credit Facilities
(5)
Commercial Banks
Bond Trustee
Ras Laffan LNG
Co.
Bond
Holders
14
Delivery Timeline
0.6 MMTA
in 1999
4.8 MMTA/year
from 2002
15
Decision Criterias & Risks
16
Major Alternatives
Invest
Not Invest
17
Our Decision Criteria
• Proven Commodity
• Vested Project Sponsors
• Strong Demand
• Well-structured Project
• Well-mitigated Risks
• Risk Premium
18
Basic Issues
Importance
Low
High
Low
Force
Majeure Risk
Qatari Legal
System
High
Infrastructure
Default Risk
Urgency
19
Immediate Issues
Importance
Low
High
Low
Foreign
Exchange
Risk
Joint
Venture
Risk
High
Oil Price
Cash
Flow
Urgency
20
Default Risk
Production Capacity
Regional Instability
Default Risk
No Perfected Interest
Breach of Contract
21
Risks Mitigation
22
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 Price
2001
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
Conclusion
32
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
Conclusion
Inherent Risks
• Geopolitical location of Qatar
• Qatari Legal System
• Breach of contract by Kogas
• Expose to currency risks
• Contractual Incompleteness
36
Bonds Comparison
Interest rate comparison
10 year term
8
7
6
5
T Bond
4
Rass Laffan Bond
3
2
1
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: Treasury Department
37
Bonds Comparison
Interest rate comparison
20 year term
9
8
7
6
5
T Bond
Rass Laffan Bond
4
3
2
1
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: Treasury Department
38
Questions?
39