financing structures for energy supply projects - Focus on LNG

Prospects, issues, and implications of gas exploration in the Eastern Mediterranean

Focus on energy developments and commercial dynamics in Cyprus

Prepared by Anastasios Giamouridis, Senior Consultant, Pöyry Management Consulting ( UK) Limited for the

“Security of Gas Supply: The Role of Developments in the Mediterranean Region”

Malta Energy Conference 2014

10-11 July 2014

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FINANCING STRUCTURES FOR ENERGY SUPPLY PROJECTS - FOCUS ON LNG

Shareholder 1 Shareholder 2 Shareholder 3 Shareholder 4 Etc...

Equity

LNG Project

Equity Equity Equity

Loans Loans Loans Loans

Export Credit Ag. 1 Export Credit Ag. 2 Export Credit Ag. 3 Export Credit Ag. 4 Etc...

Loan guaranteesLoan guarantees Loan guarantees Loan guarantees

Loans Loans Loans Loans

Commercial bank 1 Commercial bank 2 Commercial bank 3 Commercial bank 4 Etc...

LoansLoans Loans Loans

Multilateral bank 1 Multilateral bank 2 Multilateral bank 3 Multilateral bank 4 Etc...

LoansLoans Loans Loans

Completion guaranteesCompletion guarantees Completion guarantees Completion guaranteesProj

ect O

wne

rs

from

20%

to 1

00%

Proj

ect F

inan

ce -

Lend

ers

from

0%

to 8

0%

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FINANCING CRITERIA FOR ENERGY SUPPLY PROJECTS - FOCUS ON LNG

EXPLORATION AND GAS COMMERCIALISATION PROGRESS SO FAR IN CYPRUS

Source: Pöyry Management Consulting

License

Seismic Surveys

Exploratory Drilling

Appraisal Drilling

Declaration of Commerciality

Block 12 – Aphrodite field ( 1st Round )

Block 12 – other prospectivity ( 1st Round )

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Blocks 1,4,5,6,7,8,13( potential 3rd round )

Blocks 2,3,9,10,11 ( 2nd Round )

STEPS TOWARDS GAS MONETISATION AFTER DECLARATION OF COMMERCIALITY *

Source: Pöyry Management Consulting

Front End Engineering and Design (FEED)

Negotiate and sign Long-Term Contracts (LTCs) with gas buyers

Screen and select Contractor for Engineering, Procurement, and Construction (EPC)

Reach positive Final Investment Decision (FID)

Construction of gas upstream and export infrastructure commences

* Reaching a positive FID presupposes

1) Projected revenues outweigh estimated CAPEX and

OPEX by a margin superior to other investment options

2) The project in question can successfully compete for

capital and can secure financing on attractive terms

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Estimated Aphrodite resources insufficient to proceed on this basis alone - potential solutions

1. Gas discoveries by Noble Energy over and above Aphrodite in its Block 12 license

2. Gas discoveries in the new licenses awarded to Total and/or ENI-KOGAS

3. Joint monetisation of offshore natural gas resources with Israel

4. Oil discoveries ( liquids credits supporting gas economics)

POTENTIAL CYPRUS GAS RESOURCES SET IN REGIONAL AND EU CONTEXT

Aphrodite field *( discovered but not proved )

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Source: BP Statistical Review 2013 and Pöyry Management Consulting

Cyprus EEZ Blocks( speculated )

* Actual exports from Cyprus on this basis could amount to as much as 70% of Phase 1 of the Southern Corridor

MORE OFFSHORE EXPLORATION NEEDED – POLITICAL RISK REAL BUT EXAGGERATED

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Source: Oxford Institute for Energy studies and Pöyry Management Consulting

EXPORTS TO BE DECIDED ON COMMERCIAL MERIT OR RISK CANCELLATION

Source: Oxford Institute for Energy studies and Pöyry Management Consulting

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RELEVANCE OF CYPRUS GAS TO THE EU AND HOW TO SUPPORT DEVELOPMENTS

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Cyprus economy

• Hydrocarbons

production and

exports out of

Cyprus are possible

but should not be

taken for granted

• Potentially

significant impact

but challenging to

achieve gas exports

before mid-2020s

Cyprus dispute

• Making exploration

and/or export routes

conditional on

politics may delay

project or lead to

outright cancellation

• Pipeline to TR is not

necessarily the best

commercial option,

it requires normal

pre-FID scrutiny

EU companies

• Total and ENI

currently faced with

normal technical

and commercial

risks associated

with E&P process

• Politics could

undermine project if

allowed to delay

and/or interfere with

commercial logic

Supply Security

• No proved reserves

at the moment in

offshore Cyprus but

oil/gas prospectivity

needs to be

assessed in full

• Cannot replace

RUS but Aphrodite

exports alone could

reach 70% of Phase

1 of South Corridor

Support uninhibited exploration in internationally-recognised Cyprus EEZ

Facilitate decision-making on potential exports on the basis of commercial merit

Consider reasonable engagement of European multilateral banks and ECAs as appropriate

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Anastasios GiamouridisEmail: anastasios.giamouridis@poyry.com

Tel.: +44 1865 812 247 (office) / +44 7875 886 152 (mobile)