Industry Overview/Qualitative and Quantitative Risk
Analysis:
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Structure of the international petroleum industry:
o From upstream to downstream - the hydrocarbon value chain
o Upstream – exploration, development and production
o Refining – from raw material to end-product
o Pipelines – transmission and distribution
o Liquefied natural gas – a fuel of the future
o Petchem – beyond the burner-tip
Different risk/reward objectives of sponsors and lenders
Structural & pricing drivers in oil & gas lending:
o Country/political risk
o Sponsors
o Reservoir/reserves
o Technology and construction/completion
o Salesofftake
o Operation & maintenance
o Abandonment/decommissioning
o Environmental/regulatory
Quantitative risk analysis:
o Key ratios – loan life and project life covers
o Balancing equity and debt
o Features and design of oil and gas models
o Developing an appropriate base case – setting “price decks” and other
economic/technical parameters
o Sensitivity analysis:
Choosing/calibrating sensitivities
Getting to loan value
Understanding Upstream Oil & Gas Financing:
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Reservoirs & reserves – a technical grounding:
o From exploration through appraisal to development and production
o Nature of hydrocarbon reservoirs
o Estimating volumes
o Reserve classification – proven/probable/possible: 1P/2P/3P
o Reserves for banking purposes
o Due diligence and consultants’ reports
Field development finance in the early days of the north sea
Growth of the independent sector
Emergence of the borrowing base as the tool of choice
European and North American borrowing bases
Structural features of the European borrowing base, especially:
o Balancing development and producing assets
o Redetermination practices – setting technical and economic parameters
o Balancing OECD and emerging market assets
o Adding/removing assets
o Hedging as revenue protection and debt support
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Treatment of abandonment/letters of credit for abandonment
Payment waterfalls/account structures
Typical and variant distribution controls, reps& warranties,
undertakings, events of default.
The “War Stories” in north sea single-field finance– examination of the deals
that failed
Recent trends in north sea finance:
o The “New Wave” of independents
o The move by larger independents to corporate borrowing
o The new independents’ needs and the banks’ response:
Single-field financing returns
“Stretched” borrowing bases
Subordinated/mezzanine products
Getting to Grips with Refinery Finance:
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Refinery operations – from topping refineries to complex crackers
Greenfield or expansion financing?
Cashflow volatility – the key risk for lenders
Operational mitigation of volatility risk:
o “Geographical” margin protection
o Tolling-based structures
o Hedging to reduce volatility
Debt structuring to mitigate lender risk, including:
o Debt/equity balancing
o Repayment profile optimisation
o Cash sweeps
o Distribution controls and information/other covenants
Refinery market analysis for lenders:
o Choosing consultants
o Scope of work for due diligence studies
Modelling/sizing debt for refineries
“Where has it gone wrong?” – a somewhat chequered history
Oil & Gas Transmission & Distribution Lending:
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Trunk pipelines and distribution networks – very different animals
Oil and gas transmission pipelines – high fixed cost/multipartner undertakings:
o Key risk factors – especially upstream supply issues, construction
contracts and sale/offtake contracts
o Balancing the interests of private and public sector players
o Environmental/social issues – a “make-or-break” factor
o Analysis of recent oil/gas pipeline financings
Gas storage & distribution finance:
o Liberalised/regulated gas distribution has increased financing needs
o Gas storage in depleted fields and salt caverns - developing tailored
financing packages
o Funding the acquisition and build-out of gas distribution networks
o Financing gas metering
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The role of regulation and its impact on financing
Liquefied Natural Gas Finance:
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The growth of the LNG debt market
LNG liquefaction finance:
o Risk profile of liquefaction projects, especially:
Sponsor/equity issues
Construction contracts – structure and risk allocation
LNG sale contracts
o Arabian Gulf LNG projects – a detailed comparison:
Typical debt structures
Development of structures over time
LNG regas finance:
o Structural drivers – especially supply, market, regulatory and
regulatory issues
o Features of recent regas financings in:
UK & Europe
USA
India
LNG ship finance:
o The LNG shipping industry
o Corporate vs. project debt
o Structural drivers in project-based LNG vessel financing
o Comparison of project debt structures
Recent trends:
o Financing of integrated LNG chains
o Changing downstream markets and trading patterns
o Increasing flexibility in LNG sales and financing contracts
Other Downstream Finance – Petchem and Gas-toLiquids:
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The Petchem “flowchart” – from gas/naphtha-based feedstocks to endproducts
The Middle-Eastern petrochemical wave – adding value to domestic gas
resources:
o Risk profile of petrochemical projects – especially:
Construction – issues and contractual structures
Technology – bankability and licensing
Feedstocks – volume, price and quality factors
Sales/Offtake – agency/licensing issues
o Financing gas separation & treatment plants – the first step
o Polyolefin projects – financing crackers and PE/PP plants
o Increasing sophistication – aromatics and beyond
Gas-to-Liquids – financing clean diesel projects