WPC EXPERT WORKSHOP on Challenges and Opportunities in Global Oil and Gas Finance

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1 NATIONAL COMMITTEE OF UNITED KINGDOM PRESENTS WPC EXPERT on Challenges and Opportunities in Global Oil and Gas Finance London, Place: UK (City), (Country) 28 th March 2014 Date: xxth-xxth Month Year

2 TABLE OF CONTENTS OVERVIEW STRUCTURE - ORGANISATION OF THE EVENT PROGRAMME KEY DISCUSSIONS AND OUTCOMES SUPPORTING DOCUMENTS AND PRESENTATIONS CONTACTS OVERVIEW Introduction: The WPC has invited its National Committees to design and host a number of highly topical regional and global workshops to address key issues of interest to the petroleum industry, with the objective to gather experts for a thorough review of the latest developments, challenges and new solutions related to the selected subjects. The UK National Committee decided to focus its Expert Workshop on financing oil and gas projects and the opportunities and risks associated with this subject; topics of key importance to the global oil and gas industry. With its wealth of expertise, the City of London is uniquely placed to deliver financing for international oil and gas projects. Objective of the event: The main focus of the Expert Workshop were to outline the challenges and opportunities in raising finance for major international oil and gas projects. The workshop was designed to analyse risks and prospects whilst presenting a range of case studies covering the international upstream, midstream and downstream industry. The event highlighted the City of London s expertise in providing advice and expert professional services in raising capital, mitigating risks and securing insurance. More than ever before project developers, sponsors and their advisers, bankers, credit agencies and investors must be properly equipped to analyse and explain the risks and prospects for a project s future performance. Key topics: - Sources of finance for projects, impact of the global credit crisis on debt and equity funding - Identifying, analysing and explaining risks (regulatory, geo-political, completion, technical, human, commodity price risks). - Structuring and sizing the loan facilities, production sharing agreements. - Insurance requirements for financed onshore and offshore oil, gas and petrochemical projects and strategic risk management in project finance. - Case studies of upstream, midstream and downstream projects from around the world. Highlighted projects included case studies from Africa, South America, Russia, and Turkey.

3 STRUCTURE ORGANISATION OF THE EVENT EXPERT Organisation of the event: The workshop was organised by the Energy Institute (EI), the leading chartered professional membership organisation for the global energy industry. The EI hosts the WPC UK National Committee Secretariat. The workshop programme was developed by the workshop programme committee representing the WPC UK National Committee. The workshop was organised as part of the Energy Institute s International Petroleum Week (IP Week) 2014 at the Intercontinental Park Lane Hotel in London. Length of the workshop: The workshop was organised as a full day event with a reception hosted by the City of London on the evening before the workshop. Format of sessions: The workshop was divided into minute presentations with questions and discussion at the end of each session. Attendance: 100 delegates in addition to the speakers registered to attend the conference. Participants included senior representatives from the international oil and gas sector. The registered delegates represented 23 different countries. Sponsorship: The workshop was sponsored by - SOCAR Gold sponsorship. - Cooper Gay, Hill International, Amec, Standard Chartered Bank Silver sponsors. Registration fee: Repesentatives from all the WPC National Committees were invited to attend the workshop as guests of the UK National Committee, as were the speakers. The event also attracted delegates who registered to attend IP Week. Fees varied depending on the discount code used to register for the event, and the tie of registration in advance of the event. The fees varied between 270 and 630 per person, with several invited guests attending free of charge. Communication strategy: The workshop was promoted via printed and digital media to senior oil and gas decision makers around the world using the WPC, Energy Institute, UK National Committee, and City of London networks. The workshop also benefited from publicity carried out for IP Week.

4 PROGRAMME EXPERT Welcome to the WPC Expert Workshop Robert Storey FEI, Chair, WPC UK National Committee and Managing Director, STAR Refinery Welcome and introduction to the morning session John Martin FEI, Managing Director, Global Energy, Standard Chartered Bank Introduction to financing oil and gas projects key issues for international participants Benjamin Lechuga, Director Corporate Finance, Deloitte SA Keynote address: project finance preferred option? Farid Jafarov, Managing Director, Socar Russia Case studies - approaches to project finance in Africa Fathima Hussain, Director, Oil & Gas Corporate Finance, Standard Chartered Bank Refreshments and Exhibition Attracting finance - comparative South American case studies Dr Renato Bertani, CEO, Barra Energia Gustavo Tardin, Group Treasurer and Global Head of Corporate Finance, Petrobras Will Honeybourne, Managing Director, First Reserve Lunch Introduction to the afternoon session David Williams, Managing Partner, Global Oil and Gas, The Highland Group Challenges of downstream investment in today s financial climate Robert Storey FEI, Managing Director, STAR Refinery Andrew Nealon, Partner, Vinson & Elkins Insurance needs for onshore oil and gas projects Robert Glynn, Director, Energy Division, Head of Construction, Cooper Gay & Co Expert insight : strategic risk management in project finance Samir Brikho FEI, Chief Executive, Amec Renny Borhan, Managing Director, Consulting & Claims Group International, Hill Intl 21st World Petroleum Congress (Moscow, June, 2014) Vladimir Kornev, Russian National Committee of World Petroleum Congress KEY DISCUSSIONS AND OUTCOMES Technical highlights and conclusions emerging from the workshop: Presentation summaries: Introduction to financing oil and gas projects key issues for international participants Benjamin Lechuga, Director Corporate Finance, Deloitte SA Energy demand keeps growing. Natural gas consumption is expected to increase 55% by 2035, coal 27% and oil 20% according to the IEA. Projects become larger and more expensive on a unit basis. In some countries they can represent a sizeable percentage of the national GDP. This creates tensions on company balance sheets which have either to cancel or postpone capital expenditures or find alternative sources of financing. In that context, oil and gas companies have to explore the full range of financing options from traditional ones (balance sheet, corporate financing, project financing) to growing alternative ones (private equity funds, infrastructure and mezzanine funds, commodity traders). There is no standard solution. The right choice will depend as much on the maturity and cash flow predictability of the assets as on the scalability, growth potential and

5 management quality associated with the investment. Total costs for companies result not only from the returns required by financiers but also on the structuring and governance to implement in order to receive the financing. The presentation explored trends and main issues related to these financing options. Keynote address: project finance preferred option? Farid Jafarov, Managing Director, Socar Russia The presentation discussed key drivers for financing decisions, such as leverage ratios, dividend plan, capital expenditure requirements, acquisitions. It also looked a drivers for success including: experienced industry sponsors, strong project rationale / assets, robust contractual structure, landmark financing transactions, opportunity for financial institutions to establish or enhance relationships with the sponsors, liquidity driven by suitable structure. UK oil company approach to project finance focus on Africa Fathima Hussain, Director, Oil & Gas Corporate Finance, Standard Chartered The presentation featured case studies on oil and gas financings in Africa. The African oil and gas industry is strategically important for both the European and Asian markets. The majority of oil and gas projects financed to date have been in West Africa but East Africa is likely to require significant capital in the medium term with giant gas developments. Additionally, upstream export-driven commodity financings dominate the overall project financing quantum in Africa where political and offtaker risk is minimised. Political risk perception and lack of creditworthy offtakers (often stateowned) hinders investment in the downstream energy sector which requires longer-term financing structures and strong sponsors to make projects viable often requiring DFI and ECA support as key anchor lenders. Lenders are interested in financing companies that can demonstrate strong management (established relationships with governments and stakeholders, clear strategy, good operating practices), fundamentally sound projects, and those companies which practice Corporate Social Responsibility. The presentation also covered the typical financing life cycle for an E&P company from exploration through to development and steady production. Equity financing is the initial option for exploration and appraisal with secured structured debt facilities available from pre-development phases. Once a company has established a balanced cash flow generating portfolio, it can move towards arranging a corporate funding structure that may incorporate flexible revolving facilities and bonds. Session: Attracting finance - comparative South American case studies Dr Renato Bertani, CEO, Barra Energia Private equity may represent a very important source of funding for new start-up companies with experienced management and well-focused business plan. The case study of Barra Energia discussed at the workshop illustrates the opportunity niche that well-funded, medium size E&P companies may access in a highly prolific new exploration frontier like the pre-salt province offshore Brazil. Gustavo Tardin, Group Treasurer and Global Head of Corporate Finance, Petrobras The presentation focused on a case study featuring Petrobras and its strategy following the discovery of the massive pre-salt province offshore Brazil. The exploration and development of this large reserve base will continue to demand significant investments. The presentation discussed the funding strategy of the company and how the Brazilian oil giant has been accessing financial markets through jumbo transactions.

6 Will Honeybourne, Managing Director, First Reserve A global energy private equity firm s investment perspectives on Brazil was discussed including the case history of backing a world class Brazilian team to successfully build Barra Energia, a mid-sized independent E&P company, as well as the growth of international equipment and services portfolio companies within the country. Barra Energia is an example of the type of equity funding that First Reserve provides to E&P companies in many different parts of the world. Challenges of downstream investment in today s financial climate Robert Storey FEI, Managing Director, STAR Refinery The STAR refinery, which is being established using environmentally friendly technology, will produce 1.6 million tons of naphtha, which will contribute to help the petrochemical sector in Turkey on its dependence to import. The refinery also produces ULSD, jet fuel and LPG amongst other products. The refinery also has the capability to process various types of crudes such as Urals, Azeri light and Kirkuk. SOCAR is a major shareholder in the largest petrochemical company in Turkey, PETKIM, making it very competitive in the global market place. The refinery is under construction within the PETKIM value site. The foundation stone for the refinery was laid by Ilham Aliyev, President of the Azerbaijan Republic and Recep Tayyip Erdogan the Prime Minister of the Turkish Republic on the 25th October Completion is scheduled for Andrew Nealon, Partner, Vinson & Elkins Downstream oil and gas projects are among the most challenging projects to finance due to their size and complexity. Additional challenges have been introduced since the onset of the financial crisis, with many traditional project finance commercial banks scaling back and/or being more selective with their lending. Recent years have seen the role of the expert credit agencies and multi-lateral development banks increase. The presentation surveyed recent trends in the manner in which financing for downstream oil and gas projects has been sourced. Insurance needs for onshore oil and gas projects Robert Glynn, Director, Energy Division, Head of Construction, Cooper Gay & Co When projects are being promoted, quite often insurance is something that is either not thought about or is not considered until late in the day. For companies that do not have the luxury of large unencumbered balance sheets, insurance is crucial to the successful implementation of the project. No satisfactory insurances = No Project. The presentation looked at the following: - What is the usual allocation of risk between owner and contractors? - What insurances are normally required? - What information is required in order for these insurances to be purchased? - Pitfalls and issues Understanding a project s insurance needs early on alleviates much grief in the longer term. Expert insight: strategic risk management in project finance Samir Brikho, FEI, Chief Executive, Amec In financed projects the contractor is often faced with completion risk, that is typically LSTK EPC plus some level of start-up, and even into possible operations through performance demonstration. Contractors therefore can assume an unbalanced level of risk, unless they are experienced in managing these risks this may mean sharing risks with other contracting partners and suppliers, limiting risk through contractual means, obtaining selected insurances and surety bonds, etc. Contractors can face liquidated damages which can be severe, and are often required to post large letters of credit or other surety instruments which can burden their balance sheets. At times, the

7 contractor may be required (or may see an opportunity) to participate in some level of equity in the project. The presentation explained the contractor s role in project financing, outlined the risks in project financing and distribution of these risks to participants. The presentation described several risk mitigation techniques and discussed difficult-to-cover risks. Renny Borhan, Managing Director, Consulting & Claims Group International, Hill International What are the risks that a prospective financier of a major oil and gas project faces in today s environment? In a world where cost overruns and schedule delays on large capital projects seems to be the norm, are there proactive ways that can help deliver major oil and gas capital projects on time and on budget? The presentation looked at some of the common reasons why major oil and gas projects get into trouble despite apparently having very solid systems of project review, sanction and management, and why some of the world s most experienced and qualified project execution teams cannot seem to avoid multi-billion dollar cost overruns and extensive delays. Challenges from the original concept and how they were addressed/what solutions were proposed: The programme committee originally set out to focus the workshop on project finance only. However as the workshop programme developed, it was decided that other financing options should be included in the programme to show a range of financing structures available for developing oil and gas projects. Organisational issues emerging from the workshop: The workshop invited a range of questions which aided discussion between speakers and the audience. SUPPORTING DOCUMENTS AND PRESENTATIONS The following speakers have provided confirmation that they are happy for their presentations to be made available post event: Benjamin Lechuga, Fathima Hussain, Dr Renato Bertani, Gustavo Tardin, Will Honeybourne, Robert Storey, Andrew Nealon, Robert Glynn, Samir Brikho, Renny Borhan. Please see this link to access the presentations CONTACTS The Expert Workshop programme committee included: Toby Hunt, Senior Vice President, Hill International Robert Storey FEI, Chair, WPC UK National Committee and Managing Director, STAR Refinery John Martin FEI, Managing Director, Global Energy, Standard Chartered Bank Robert Glynn, Director, Energy Division, Head of Construction, Cooper Gay & Co Marta Kozlowska, Development Director, Energy Institute Sheetal Ruparelia, Events Producer, Energy Institute For more information please contact: Marta Kozlowska, WPC UK National Committee Secretary, e: marta@energyinst.org