LNG Sale and Purchase
Agreement Financing Issues
Workshop
Presented by: Steven Miles
Jason Bennett
Baker Botts' LNG Experience
 60+ LNG projects, including 20 in the last two years
 Successful closing of several LNG deals in 2004 and 2005,
including launch of three major greenfield liquefaction
projects
 Experience in all aspects of the LNG trade and development
practice, including SPAs, upstream gas and liquids
development and transportation, JV structuring,
governmental agreements, EPCs, marine terminal
agreements, shipping, finance, labor, tax, and environmental
 35 attorneys with LNG project experience, 700 attorneys
worldwide with full service and international capabilities
 Ranked in top 3 law firms worldwide for service to energy
industry
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Baker Botts' LNG Projects
United States - Northeast:
Distrigas Project
Everett LNG Project
Weaver's Cove LNG Project
United States - Mid-Atlantic:
Canada:
Cove Point LNG Purchase
Bear Head
Mexico:
Algeria
United
States
Southeast:
Proposed
Elba Island Project
LNG Project
United States - Alaska:
Kenai LNG Project
Bahamas:
Ocean Cay
Puerto Rico:
Ecoelectrica Project
Honduras:
El Faro Project
Dominican Republic:
Andres Project
Peru:
Camisea Project
Trinidad & Tobago:
Atlantic LNG Project
Qatar:
QatarGas 3 Project
QatarEurope Project
China:
Guangdong & Fujian
Japan
Osaka Gas
Western Buyers
Nigeria
Bonny LNG
Brass LNG
Venezuela:
Equatorial Guinea:
Jose Project
EG LNG Project
Mariscal Sucre
Platforma Deltana Project
VLNG Project
United States Gulf Coast:
Golden Pass LNG Terminal Pearl Crossing Project
Pelican Project
Vista del Sol LNG Terminal
Cameron LNG Project
Freeport LNG Project
Freeport-McMoRan Main Pass Energy Hub
India:
Dahej LNG Terminal
Kochi LNG Terminal
Dahbol Project
Pipavov Project
Indonesia:
Tangguh Project
Bontang Project
Australia:
Darwin LNG Project
Why is an SPA so Important to Financing?
 Limited recourse financing based largely on project
revenues, not sponsor credit
 For sellers: SPA underpins most, if not all, project
revenues
 For buyers: SPA underpins most LNG supply
necessary for downstream gas sales, which produce
most, if not all, project revenues
 A properly structured and drafted SPA, executed by a
creditworthy counterparty, provides lenders assurance
that project revenues will be sufficient to repay the
debt
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Themes for Lenders
 Supply and Offtake - Confirming that the sponsor's
“story” for the project is true.
 Construction Risk - From permitting to handover of
the facilities, banks don’t like to hold their breath.
 Pricing - Henry Hub is sounding better and better but
don’t even mention the word “reopener”.
 Quantities - Build-Up, Downflex, Carryforward, MakeUp, and other dirty words.
 Destination Flexibility - What’s everyone so excited
about? Doesn’t this threaten project revenues?
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Themes for Lenders
 Credit, Credit, Credit - Lenders prefer 20-year,
uncapped, AAA backed obligations.
 Legal Risks - Lender’s counsel’s role in re-examining
the deal you cut...
 Force Majeure and Change in Law - When the caprice
of nature and government collide with the project
revenue streams.
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Supply and
Offtake
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Key Questions include:

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
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Is there gas?
Is there enough gas?
What is the market and what is plan A for offtake?
What is plan B?
Will demand be sufficient in the ultimate market for the
gas?
 Will the gas specification fit the market?
 Will the transporting party have adequate committed
shipping capacity?
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Let’s take a look at some
issues and alternative
versions of important Gas
Supply provisions:
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Gas Supply Alternative 1:
Seller warranty of gas reserves
 Key features:



An explicit warranty - “Seller represents and warrants that at all times during the Term it
will have access to or rights in respect of Gas Reserves that can produce Gas for
delivery to Seller to use at the LNG Plant that is sufficient to allow Seller to make
available the ACQ during the Term (in light of all of Seller’s other obligations to sell LNG
from the LNG Plant) in accordance with the terms of this Agreement.”
An explicit warranty might also make no specific reference to existing Gas Reserves,
provided that in respect of any warranty of Gas Reserves, Force Majeure will not
include, “damage to or loss or failure of any gas reserves as a result of depletion or the
absence of economically recoverable natural gas, except to the extent the same is
caused by an event that would itself constitute an event of Force Majeure.”
The key to making this covenant effective - some form of credit support sufficient to
provide comfort to lenders that there will be enough cash to cover debt service if the
Gas Reserves are inadequate.
WITHOUT A CREDITWORTHY PARTY OR CREDIT SUPPORT, A
WARRANTY OF GAS RESERVES HAS LITTLE VALUE.
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Gas Supply Alternative 2:
Dedication of gas reserves



A defined Gas Supply Area, for which, “Seller, at its expense, has provided Buyer with (i) a
Reserve Certificate and a Deliverability Report, and (ii) copies of all agreements (excluding
the price terms contained therein), as of the date hereof, that Seller has entered into for the
sale of Gas produced from the Gas Supply Area.”
Seller’s lenders will likely require that the Reserve Certificate and Deliverability Report
indicate that the aggregate Gas Reserves in the Gas Supply Areas will be sufficient to
produce LNG required for delivery under the SPAs for the project for a period at least as long
as the tenor of the loans, plus an additional margin (possibly from 15-40%). Buyers and their
lenders will likely want more....
Seller’s additional sales of Gas and LNG from the Gas Supply Area will be restricted such
that following the date of execution of the SPA, Seller is not able to sell the Gas or LNG to
other parties in a manner that would deplete the Gas Reserves below the amount required
for Seller’s long-term SPAs, unless Seller obtains rights to additional Gas supplies.
DEDICATION OF RESERVES REQUIRES SOME FORM OF
RESTRICTION ON SALES OF GAS TO THIRD PARTIES.
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
The other side of the story is Offtake.
Where will all of the LNG be sold?

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Buyer’s market should already exist. There is considerable resistance by lenders to financing
LNG facilities for markets that will be developed unless the regasified LNG offtake commitments
are firm and are backed by creditworthy entities.
Buyer must own or have a commitment to build and maintain facilities in a market that matches
the pricing for the SPA. Lenders want to see a provision similar to the following:
Buyer warrants that, acting as a Reasonable and Prudent Operator, it shall at
all relevant times from the Initial Supply Date and continuing throughout the
Contract Term own, or have access to and use of, and maintain and operate
or cause to be maintained and operated, consistent with International
Standards and subject to all applicable Laws, Buyer’s Facilities [a Designated
Regasification Terminal] that enable Buyer to fulfill its obligations to Seller
under this Agreement.
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
The other side of the story is Offtake.
Where will all of the LNG be sold? (cont'd.)

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Lenders' faith in the existence of Buyer’s facilities is also related to the conditions precedent
for Buyer’s facilities discussed below.
A requirement for dedicated facilities will likely also be the case for an FOB deal where, “after
taking delivery of LNG at the Delivery Point, Buyer has the right to transport the LNG to, and
market the LNG at, any destination of its choosing, in accordance with the provisions of this
Agreement.”
EVEN WITH FULL DESTINATION FLEXIBILITY, LENDERS WILL WANT TO
SEE A FIRM PLAN B WHERE THE GAS CAN ALWAYS BE DELIVERED.
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Construction
Risk and
Conditions
Precedent
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Construction Risk and Conditions Precedent
Construction risk and conditions precedent will materially color lenders' perceptions of a project.
Brownfield and greenfield LNG plants and regasification facilities will be treated differently.
Key Questions include:


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What is the permitting risk?
When will the parties know whether the Seller’s and Buyer’s facilities are fully
permitted?
Who takes construction risk?
What are the Conditions Precedent and when will they be satisfied?
Is Ted Kennedy aware of the project?
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Let’s look at some issues and
sample provisions that highlight
some of the concerns:
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Issues and Sample Provisions

Seller and Buyer mutual conditions precedent might include the following, depending on the type of
project (focus on the red text):
This Agreement (other than the provisions of this Section 2 and [other enumerated Sections]) shall
not become effective unless and until all of the following conditions have been satisfied or waived by
[insert date] (or such earlier date as the Parties may agree):
(a) Seller has secured a [final investment decision] from its corporate parent and board of directors
(or the applicable equivalents) to enter into this Agreement and any engineering, procurement,
and construction contract and to proceed with construction of Seller’s Facilities;
(b) Seller or its Affiliates have obtained all permits necessary for it to commence construction of
Seller’s Facilities (other than any expansion facilities indicated in such definition);
(c) Buyer has secured a final investment decision from its corporate parent and board of directors
(or the applicable equivalents) to enter into this Agreement and any engineering, procurement,
and construction contract and to proceed with construction of Buyer’s Facilities; and
(d) Buyer has obtained all permits necessary for it to commence construction of Buyer’s Facilities
(other than any expansion facilities indicated in such definition).
PERMITTING AND CONSTRUCTION RISK WILL DELAY
FINANCING AND LIKELY REQUIRE SPONSOR SUPPORT FOR
SOME PERIOD OF TIME.
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Pricing and
Quantities
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Pricing and Quantities
As discussed above, limited recourse financing is based largely on project revenues. It is
important that lenders understand and can evaluate the pricing mechanism and its track record. It
is equally as important that lenders are comfortable that the quantities sold in each period during
the tenor of the loan will be sufficient to cover debt service plus some additional margin.
Key Questions include:
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Is the price linked to an index or other commodity or is it a netback or other arrangement?
Is pricing transparent and reflective of a robust market for natural gas?
What happens if the basis collapses for an index?
Is there a price reopener or index breakage provision that might threaten the stability of
project revenues?
What are the max and min quantities?
Is there a substantial commissioning period or build-up period?
What deductions and carryforwards will shift volumes year-on-year?
How firm is DoP/ToP and when is it paid?
How will Make-Up rights affect current and future project revenues?
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Let’s look at some pricing
issues and sample provisions
that highlight some of the
concerns:
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Pricing Issues and Sample Provisions

The following pricing provision may be familiar to some of you:
 The price of LNG applicable to each Cargo scheduled for delivery at the Delivery Point
during each Month during the Basic Term shall be determined according to the following
formula:
CSP = Henry Hub Index Price (USD/ MMBtu) * ___%

Replacing the words “Henry Hub” with “Houston Ship Channel,” “National Balancing Point,” or
another transparent index reflecting a market pricing will have some effect on lenders' view of
the deal.
Replacing the Henry Hub Index Price with a non-transparent or non-market pricing mechanism
(such as an index published by a government or parastatal entity) will likely cause problems.
Provisions such as the following are not popular with lenders and can become very unpopular
depending on how the parties finish the sentence:
If, at any time, the CSP during the previous three hundred sixty-five (365) Day period has
resulted in net revenues to Seller/Buyer less [_________] during such period, Seller/Buyer
may provide notice of such event to the other Party, and following that other Party’s
receipt of such notice, the Parties shall meet in order to determine whether a revised
formula for the Contract Sales Price is acceptable to both Parties; provided, however, that
if the Parties cannot agree...


LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Pricing Issues and Sample Provisions
The quantity provisions of the SPA will also be closely examined by lenders and lenders' counsel.
Let’s look at some quantity issues and sample provisions that highlight some of the concerns:

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Periods during the term with reduced supply, such as commissioning periods, build-up
periods, and maintenance periods, will affect lender calculations of project revenues, as
they limit the early volumes of LNG sold, which have the greatest effect on project
economics.
Additionally, the right by either party to reduce or shift the quantity delivered to any
future period (e.g., Buyer or Seller downward flexibility rights or maintenance reduction
rights) will also affect lenders’ view of the project’s revenues available during any period.
For example, the following downward flexibility provision might be material to lenders:
Buyer may, in respect of any Contract Year, request a downward quantity
adjustment in the ACQ for that Contract Year during the development of the
applicable Annual Program by electing not to schedule a maximum of [
%] of the ACQ for such Contract Year (“Buyer Downward Flexibility
Quantity”); provided, however, that the cumulative aggregate amount of
Buyer Downward Flexibility Quantity during the term may never exceed
[____%] of the ACQ.
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Pricing Issues and Sample Provisions
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Lenders will likely seek firm Take or Pay and Deliver or Pay provisions in an SPA. In evaluating
ToP and DoP, lenders will also look to the timing of payments, preferring immediate payment for
failures to perform. For example, the following ToP provision (or analogous DoP provision),
without additional protections, might raise concerns for lenders as Seller might be required to wait
a year or more prior to receiving ToP payments:
If (i) the total quantity taken by Buyer in any Contract Year is less than (ii) the
Take or Pay Quantity for such Contract Year (determined as of the last Day of
such Contract Year), Buyer shall pay for the shortfall between (i) and (ii) at the
Weighted Contract Sales Price for such Contract Year.
Buyer’s right to receive Make-Up quantities and Buyer’s right to cash-out such Make-Up rights will
also affect lenders' view of Buyer’s and Seller’s cash flows. If Buyer does not have a reasonable
opportunity to receive Make-Up quantities, its lenders will likely require additional credit support to
cover Buyer’s potential failures to take, as volumes of LNG (and thus revenues) might not be
available or might be materially delayed.
At the other extreme, if Buyer’s cash-out rights require Seller to cash-out Buyer's Make-up
entitlement without sufficient opportunities for Seller to deliver the LNG, Seller’s lenders might not
consider the Take or Pay provisions to be an effective remedy for Buyer’s failure to perform.
QUANTITY AND PRICE PROVISIONS WILL DIRECTLY AFFECT THE
ABILITY OF A PROJECT TO REPAY DEBT AND THUS WILL BE CLOSELY
REVIEWED BY LENDERS.
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Destination
Flexibility
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Destination Flexibility
As popular as destination flexibility is among project sponsors and energy companies, the
structure of “flexible” contracts and the value created thereby might not be as highly prized by
lenders, especially if Buyer or Seller diversions might result in a loss of revenue for or
additional costs to the borrower.
Apart form the logistics of making true destination flexibility work, concerns for lenders will
likely include:
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ensuring the lenders' borrower is not adversely affected by the diversion (i.e., not
diverted to a lower price market for non-price reasons);
managing additional shipping expenses involved with some diversions without
overbuilding the shipping fleet;
limiting diversions that would disrupt operations at the Seller’s or Buyer’s facilities; and
being able to evaluate the economics of a project if the target market, LNG source, or
pricing change based on the destination flexibility provisions of an SPA.
DESTINATION FLEXIBILITY PRESENTS RISKS FOR LENDERS THAT
MUST BE MANAGED, NOT OPPORTUNITIES.
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Credit,
Credit,
Credit
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Credit, Credit, Credit
Despite the primary focus on project revenues, lenders will be very interested in the credit
support for the project (i.e., the creditworthiness of the Seller, the Buyer, and entities
providing credit support to either of them) to determine the risk to project revenues due to
non-performance by any party.
Key Questions include:


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Are the Buyer and Seller creditworthy entities?
If not, who will support the multi-billion dollar obligations for these projects?
Will the credit support be in the form of an irrevocable payment guarantee or a cashable
credit?
If a guarantee is provided, will it be subject to credit ratings or other credit triggers?
Is liability capped or uncapped?
How will the parties manage assignments to lenders?
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Let’s look at some issues and
sample provisions that highlight
some of the concerns:
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Issues and Sample Provisions


Buyers and Sellers might be special purpose vehicles based on tax and project structuring
considerations. The absence of creditworthy parties and the need to finance a large portion
of the LNG plant or the regasification facilities results in the need for a creditworthy entity to
provide a guarantee or cashable credit as a performance security for the obligations of one or
both parties to an SPA.
Typical Guarantee provisions are similar to the following:
Buyer shall provide and cause to remain in effect during the Term, one or more guarantees in
favor of Seller in the form of Exhibit A hereto, from one or more Acceptable Buyer Guarantors.
The Buyer Guarantors’ liability under the Buyer Guaranty in aggregate shall not exceed [Insert
large number].


Standards for what constitutes an “acceptable” guarantor vary based on several factors but a
good credit rating and high consolidated net worth are a good starting place. Many
companies refuse to accept credit ratings triggers as a matter of corporate policy but might
be willing to accept other similar measures of on-going creditworthiness instead.
Liability caps are also a possible feature of LNG trades and are often paired with termination
fees.
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Issues and Sample Provisions

Planning for assignment of the SPA to lenders can be a thorny process, as lenders will require
certain covenants and other limitations on the exercise of certain rights in order to allow them
to cure any breaches of the SPA by a borrower. A typical formulation that is often debated in
SPA negotiations is as follows:
The non-assigning Party, if requested by the assigning Party, shall negotiate and enter into an
agreement with the assigning Party’s Lenders on reasonable terms which provides for:
(a) the assignment and transfer of the assigning Party’s rights and obligations
under this Agreement to a nominee of the Financial Assignee following a
default by the assigning Party under its lending arrangements;
(b) a requirement that a Party intending to terminate this Agreement shall first
notify the Financial Assignee thereof to allow the Financial Assignee to cure
the relevant Termination Event (if such Termination Event, by its nature, is
capable of remedy); and
(c) such further undertakings as are normal and customary in project financings.
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Legal Risks
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Legal Risks
Legal risks arising from the SPA are as complex as the documents themselves. Lenders and
lenders' counsel will be concerned about the enforceability of key provisions of the SPA and
any rights of the parties under the SPA to suspend performance or terminate such
agreement.
Key Questions include:





Are there liability limitations in the SPA, and if so, are they enforceable?
If the SPA includes liquidated damages (such as deliver or pay payments or termination
payments), are those provisions enforceable?
What are the suspension and termination rights of the parties?
What are the cure rights of the parties for breaches?
How might unlawful business practices of the other party affect the project?
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Legal Risks
Despite the general rule on favor of enforcing voluntary agreements between parties under New
York and English law, there are always concerns that certain provisions might be unenforceable.
Additionally, lenders are typically concerned with rights of the parties to suspend performance or
terminate the SPA, as those decisions could materially reduce the revenues available to the parties
to repay debt.
Let’s look at some issues and sample provisions that highlight some of the concerns:

Liability limitations might appear as follows:
Notwithstanding any provision herein to the contrary, the maximum aggregate
liability for Buyer’s Aggregate Obligations as of any given date shall not
exceed the sum of (a) [$an amount to be agreed by the parties] as of such
date, plus (b) any amounts accruing prior to such date related to or arising out
of (i) any Cargoes taken but not paid for prior to such date or (ii) any
indemnity obligation.
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Legal Risks

Suspension of a party for non-payment allows the other party (i.e., the party owed
money) to accrue ToP/DoP payments but be able to deliver cargoes to or take cargoes
from a third party during that period of non-payment. The threshold for suspension is
one of the material elements to consider. Typical suspension provisions might be as
follows:
If Seller has not received payment in respect of any amounts due under any
invoice(s) hereunder within [___] Days after the due date thereof, which amounts
in aggregate equal or exceed United States Dollars [$insert amount], then without
prejudice to any other rights and remedies of Seller arising hereunder or by Law
or otherwise, upon giving [_____] Days’ written notice to Buyer, Seller may
suspend any or all subsequent LNG deliveries until the amounts outstanding
under such invoice(s) and interest thereon have been paid in full, and Buyer shall
not be relieved of its obligations relative to such quantities of suspended deliveries
or any other obligations of Buyer hereunder. Seller shall be deemed to have
made available under this Agreement any Cargoes not taken by Buyer during the
continuance of such suspension.
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Legal Risks

Lenders will be very concerned about termination rights that allow for termination for
short-term (or possibly medium-term) failures to perform. Some examples of sample
provisions with low thresholds for non-performance are as follows:
The following circumstances (Termination Events) shall give rise to the right for Seller
and/or Buyer (as the case may be) to terminate this Agreement:

(a) in respect of either Party, if the other Party fails to pay or cause to be paid an
amount under this Agreement equal to or greater than United States Dollars
ten million (US$10,000,000) for a period of thirty (30) Days after the due date
for payment of the relevant invoice; or
(b) in respect of either Party, if the other Party fails to take or make available, as
the case may be, when required under this Agreement an amount of LNG
equal to at least eighty percent (80%) of the ACQ in any twelve (12) Month
period (regardless of whether or not this occurs as a result of Force
Majeure).
Under the U.S. Foreign Corrupt Practices Act, U.S. persons might, under certain
circumstances, be required to terminate the SPA based on the acts of a counterparty.
Although termination of profitable business relationships for non-business reasons is not
popular with lenders, parties should plan for this contingency in SPA drafting.
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Force
Majeure and
Change in
Law
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Force Majeure and Change in Law
Force Majeure and Change in Law provisions govern complications arising from third parties,
governmental authorities, and acts of God. Due to the potential impact of both Force Majeure
and Change in Law on project economics, lenders and lenders’ counsel always closely
review those provisions.
Key Questions include:





What are the FM events for the parties?
What are the limits on FM?
Does the LNG Plant provide cross-train reliability?
Does Buyer have access to other receiving terminals that will be made available for receipt of
Seller’s cargoes if Buyer cannot take LNG at its dedicated receiving terminal?
Who bears the costs of changes in law for LNG ships and LNG specifications?
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Force Majeure and Change in Law
Force Majeure provisions relieve a party of its obligation to perform for some
period of time, “to the extent that its performance is prevented, impeded or
delayed by an act, event or circumstance whether of the kind described in the
SPA or otherwise, that is not reasonably within the control of Buyer, acting as a
Reasonable and Prudent Operator.”
Change in Law provisions do not typically relieve a party of its obligation to
continue to perform. Change in Law provisions typically divide the cost of various
types of changes in law among the parties in a predetermined fashion (e.g., for
change in the gas specification in the importing country that requires processing
of the LNG).
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Let’s look at some issues and
sample provisions that highlight
some of the concerns:
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Force Majeure and Change in Law

Force Majeure events typically include: acts of God, war, terrorism, general strikes, loss of,
serious accidental damage to, to or inaccessibility to or inoperability of facilities, and chemical
or radioactive contamination or ionizing radiation (our favorite).

Limitations on Force Majeure events will likely be sought by lenders, possibly for the
following:
(a) breakdown or failure of equipment or other property caused by normal wear
and tear, or failure to properly maintain equipment or stock of spares;
(b) failure to pay monies then due to any person, for any reason, including
unavailability of funds;
(c) the withdrawal, denial or expiration of, or failure to obtain, any Authorization
from any Governmental Authority, to the extent the affected person can apply
for and obtain, maintain or extend or could have reasonably applied for and
obtained, maintained or extended, any such Authorization, or caused by the
affected person’s failure to observe the terms and conditions of any existing
Authorization or other requirement of Law; and
(d) any failure of markets in Buyer’s Countries to take or pay for gas.
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Force Majeure and Change in Law
 Following the occurrence of an event of Force Majeure, the affected party will have the
duty to attempt to mitigate the effects thereof and may have contractual duties that:
(a) limit the Force Majeure relief to a certain period;
(b) require a party to spread the effect of such Force Majeure event across all
SPA counterparties; and
(c) require a party to seek alternate means of performance (e.g., finding
capacity at another receiving terminal or chartering an additional LNG tanker,
as applicable).
 Lenders will likely prefer cross-train reliability of projects and strong mitigation
requirements.
 Change in Law provisions dividing up the costs of a Change in Law between the parties
will typically reflect the ability of the parties to prevent or mitigate the risk of such Change
in Law. Lenders are likely to resist Change in Law provisions that require their borrower to
assume risks that the other party is in a better position to prevent or mitigate.
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
Thank You
Steven R. Miles
Baker Botts L.L.P.
The Warner
1299 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2400
Tel: 1-202-639-7951
Fax: 1-202-585-1090
Email: steven.miles@bakerbotts.com
Jason K. Bennett
Baker Botts L.L.P.
2001 Ross Avenue
Dallas, Texas 75201-2980
Tel: 1-214-953-6425
Fax: 1-202-585-1004
Email: jason.bennett@bakerbotts.com
LNG Sale and Purchase Agreement Financing Issues Workshop
Presented by Steven Miles and Jason Bennett
LONDON
WASHINGTON
AUSTIN
DALLAS
HOUSTON
MOSCOW
NEW YORK
RIYADH
DUBAI
HONG KONG