EBRD and the Financing of Oil & Gas Companies

Transcription

1 EBRD and the Financing of Oil & Gas Companies Kevin Bortz CIS Oil and Gas Summit Day 2: Key Trends Affecting Investment into the CIS Oil and Gas Paris, May 2012 European Bank for Reconstruction and Development

2 List of Contents 1. Overview of EBRD: Mission and Guiding Principles 2. EBRD Financing Capabilities and Requirements 3. EBRD Oil &Gas Portfolio, Risks Mitigation and Track Record 4. Lessons Learnt 2

3 What is the EBRD? AAA/Aaa rated multilateral development bank. Promotes transition to market economies in 29 countries from central Europe to central Asia. The Bank expects to expand into Southern and Eastern Mediterranean, to include Egypt, Jordan, Morocco and Tunisia by year end Capital base EUR 30 billion. Owned by 63 countries and two inter-governmental institutions. Facilitates inward and cross boarder investments in the region. 3

4 A network of 33 offices in 29 countries More than half our bankers based in the region 4

5 EBRD s objectives To promote transition to market economies by investing mainly in the private sector. To mobilise significant foreign direct investment. To support privatisation and restructuring. To promote policy dialogue with regards to investment climate business environment and policy matter. To encourage environmentally sound and sustainable development. 5

6 EBRD s exposure Invested over EUR 71.1 billion in more than 3,389 projects since EUR 9.0 billion invested in 2010 in 386 projects. As at end Dec 2011: EUR 9.1 billion invested in 380 projects. Private sector accounted for 77% share. Debt 85%, Equity 15% Record high results in Q1 2012: EUR 1.9 billion invested in 73 projects compared to EUR1.1 billion in 67 projects in Q Net profits EUR 637 million compared to EUR 330 million in Q Annual business volume (ABV), bl Debt ABV Equity ABV Net Cumulative Business Volume Net cumulative business volume, bl 6

7 2011 annual business volume by region Central Europe & Baltics 15% Russia 32% Turkey 10% Central Asia 5% South-eastern Europe 17% Eastern Europe & Caucasus 20% EUR 9.1 billion invested in 380 projects 7

8 List of Contents 1. Overview of EBRD: Mission and Guiding Principles 2. EBRD Financing Capabilities and Requirements 3. EBRD Oil &Gas Portfolio, Risks Mitigation and Track Record 4. Lessons Learnt 8

9 EBRD Product Flexibility: tailored to project needs Loans Senior, subordinated, convertible, bonds, Project finance and corporate A/B structure. Additional funds mobilized through syndication Typically we finance up to 35% of total project cost Tenor up to 15 years to match underlying project cash flows (average of 2-3 years longer than commercial banks) Margin benchmarked to market Common stock or preferred Minority position only (up to 20%) Mezzanine Exit through IPO, trade sale or put/call agreement Guarantees Equity Other instruments Currency swaps Trade facilitation program 9

10 Benefits of working with the EBRD Catalyst for additional commercial investment in Debt and Equity Strong, internationally recognized partner with long term perspective Mitigation of political and regulatory risks Close relationship with governments and shareholders Grant-funded technical assistance available Flexible deal structure Debt finance to both public and private sector Syndication under preferred creditor status LT Debt Financing EBRD Value-added EBRD value - added Shareholder s Value Value Equity Financing Support for strategic investors Promotes sector expertise and best corporate governance practices Active shareholder with representation on Boards of Directors Neutral party 10

11 Attracting additional funding Catalyst for commercial investment: every EUR 1 invested or lent by EBRD mobilizes up to EUR 3 from other sources Additional equity investment: by investing as a minority shareholder we attract other high calibre equity investors Debt syndication: the EBRD can syndicate part of senior debt under A/B structures with commercial banks Debt co-financing: the EBRD will work with or alongside other commercial banks and IFIs to provide the appropriate debt package 11

12 List of Contents 1. Overview of EBRD: Mission and Guiding Principles 2. EBRD Financing Capabilities and Requirements 3. EBRD Oil &Gas Portfolio, Risks Mitigation and Track Record 4. Lessons Learnt 12

13 EBRD Natural Resources Healthy business volume growth As of 31 March 2012, 4.2 billion (Debt/Equity 85%/15%) have been invested into projects worth 18.2 billion Cumulative EBRD investments (EUR million) % of Total Project Value 4,500 4,000 3,500 3,000 2,500 2,000 30% 25% 20% 15% 1,500 1, % 5% 0%

14 EBRD Natural Resources Cumulative investments breakdown Team of 25 Bankers between London, Russia, Ukraine, Kazakhstan, Mongolia and Turkey Natural Resources Financing by Sub-sector Natural Resources Financing by Region 10% 16% 21% 12% 9% 15% 18% 12% 29% 35% 23% Oil & Gas downstream Oil & Gas midstream Oil & Gas upstream Support and Remediation Services Oil&Gas Mining South-Eastern Europe Russia Central Europe and the Baltic States Central Asia Eastern Europe and the Caucasus Multi-regional 14

15 Risk Approach - overview Risk Matrix EBRD finances projects at all stages. An existing producing portfolio can be used to fund further development/ exploration through various lending products Early Exploration Late Exploration Production Mainly Equity Risk Difficult to take on a stand-alone basis Can be part of a larger portfolio including production and development Standalone development risk remains high, but the bank can support through equity holdings or contract guarantees Expansion Development: as part of a portfolio/existing project can be covered through a borrowing base approach Very acceptable for the bank; can be part of the securitisation package of more risky assets Diversity of products available EBRD commitment is flexible and based upon dedicated assessment of the assets 15

16 Key Risks identification Technical Completion - On time - On budget - On spec Production Capacity Reserve & Production Reservoir quality Pressures Water Content Financing Funding availability Sponsor Project Cash Flows Market Commodity price FX and Currency exposure Sovereign Stability Convertibility Legal & Contractual Agreements: Offtaker Feedstock & Utilities Inter-creditor Environment & Safety Pollution Hydrocarbon Leakage Upstream Financial Midstream Downstream Governmental Licences for exploration and production Fiscal Regime Stakeholders & Civil society NGO s Immediate neighbourhood Technical & Environmental Political & Social 16

17 Political Risks Mitigation A Growing Concern in Energy Require Various Mitigants Higher commodity price has generated a movement of Resource Nationalism Instability in existing E&P permits and licenses Sharp increase in Tax and Duties over producing project Discriminatory treatment between national Champion / Flagship companies and foreign investors Adequate Due Diligence Energy Charter Treaty Strong commitment on the DD phase Get access to local counsel Clarify any outstanding issues with public authorities (licence / tax ) Providing a framework for discussion Providing a last resort solution through arbitration Generating a threat over investment Recent lack of funding put a strong pressure on investment program EBRD s Preferred Creditor Status Providing umbrella under EBRD Loans not subject to moratoria No restrictions on convertibility or transferability of hard currency 17

18 Mitigating Sovereign Risk EBRD s Preferred Creditor Status Mitigating Sovereign Risk means Loans not subject to moratoria, rescheduling or restrictions on convertibility or transferability of hard currency Exemption from country provisioning requirements (where applicable) for participant banks EBRD loans not in Paris Club or London Club May allow rated transactions to pierce the sovereign ceiling does not mean A guarantee or letter of comfort from the government, or from the EBRD, that the loan will perform commercially co-financiers must carry out their own due diligence in the normal manner Following the Russian moratorium of 17 August 1998, the Russian Central Bank issued this exemption: [the moratorium]... does not cover... obligations of Russian residents under financial loans from the EBRD, including those involving resources from foreign banks and financial and investment institutions Central Bank of Russia Directive No. 328 (August 26, 1998) During the moratorium, all payments to the EBRD and its B lenders came through on time 18

19 Risks Allocation ($M) Cumulative Net Exposure 2, FID * Completion Decommissioning / Exit 1, Increasing Political Risk 1, Decreasing Political Risk Y 1 Y 3 Y 5 Y 7 Y 9 Y 1 1 Y 1 3 Y 1 5 Y 1 7 Y 1 9 Y 2 1 Y 2 3 Y 2 5 Y 2 7 Y 2 9 Y 3 1 Events / Tasks Appraisal Feasibility studies Pre FEED * FEED * FID * Capex EPC Start-up Operation Maintenance Positive cash-flow generation Decommissioning Abandonment Political Risks Exploration Permit and Licence Appraisal & Production Permit Environmental Permits Currency Convertibility Tax Changes VAT and Export Duty exposure FID: Final Investment Decision, FEED: Front End Engineering Design, TC: Technical Cooperation 19

20 EBRD Oil & gas projects financing EBRD debt financing Corporate Debt Senior and/or mezzanine and/or on top of equity Reserve-based lending for early/intermediate development stage Straight loan for advanced development stage Environmental, health & safety Loans For clean-up and energy efficiency For health & safety (H&S) improvements EBRD equity financing Long term partnership with EBRD acquiring usually up to 20% of the share capital Entry valuation based on various methods: DCF, multiples (sales, EBITDA, 2P reserves etc) EBRD is an active shareholder, often with a representation at the Board Exit Strategy at 5 to 7 years to be agreed upfront Future IPO Trade Sale Exit to partner Project Finance Debt Senior secured to project SPV Limited recourse to sponsor 20

21 Summary of EBRD Transactions in Oil&Gas Russia Central Asia Central & SE Europe Ukraine & Caucasus Oil & Gas Extraction Pechora Energy; Irkutsk Oil & Gas Equity; Irkutsk Oil & Gas Debt Petrom Equity; CEOC Lukoil Shah Deniz Gas Condensate; KUBGAS Pipeline, Storage & Gasoline Stations MT Petrol Stations; Kenkiyak-Atyrau Pipeline; Shnos Plinacro; Srbijagas Lukoil SCP Pipeline; BTC Pipeline; Galnaftogaz Remediation& Support Services Lukoil Env. Loan; Integra Zhanros Petrom Env. Loan; Patos-Marinza Refining & Support MOL; INA; PKN Orlen 21

22 LUKOIL Environmental Loan (Russia) Overview Key Figures Dedicated source of finance for Lukoil s group wide environmental enhancement programme inter alia pollution clean-up, pipeline replacement, gas flaring reduction, health and safety measures, energy efficiency USD 300 million syndicated A/B Loan facility Corporate unsecured facility 10 years A loan 7 years B loan Flexible framework facility driven by Lukoil Standard call-off notices prepared by Lukoil for each project Monitoring derived from Lukoil s internal reporting system 22

23 Baku-Tblisi-Ceyhan (BTC) Pipeline (Regional) Overview Key Figures Primary export route for crude oil/other liquid hydrocarbons production from Azerbaijan and the Southern Caspian 1,743 km long, with ultimate design capacity of 1,000,000 bpd EBRD provided a critical lead role in environmental public consultations and working with NGOs as an honest broker EBRD played a key role in arranging a USD 1.7 billion financing package for this USD 3.7 billion project. EBRD own financing USD 250 million syndicated A/B Senior facility Non-Recourse Project Finance Loan 11.8 years A loan 9.8 years B Loan 23

24 Shah Deniz Gas Field and South Caucasus Gas Pipeline (Regional) Overview Key Figures Shah Deniz Gas Field (Azerbaijan): largest gas field in Caspian, with worldclass reserves of over 30 trillion cubic feet SCP Pipeline (Azerbaijan, Georgia, Turkey) 690 km long, with peak capacity of over 20 billion cubic feet Pipeline starts at the Shah Deniz gas field terminal, traversing Azerbaijan and Georgia and connecting with BOTAS domestic gas distribution system at the Georgian-Turkish border First ever project finance for a gas pipeline in the Caspian sea region Shah Deniz Gas Field: project in 4 stages, with EBRD total senior loans of USD 220 million to partly finance Lukoil and SOCAR 20% share in consortium SCP Pipeline: project in 4 stages, with EBRD total senior loans of USD 140 million to partly finance Lukoil and SOCAR 20% share in consortium 24

25 KUBGAS Project (Ukraine) Overview Key Figures Financing the development of gas fields in Eastern Ukraine Local client, majority controlled by Canadian E&P company, Kulczyk Oil Ventures Inc. Support to private sector and FDI in Ukraine upstream sector Senior borrowing-base loan with equity kicker for USD 40 million. Syndication of USD 15 million (A/B structure). 7-year tenor. Tranching tying disbursements to reserve base and achievement of operational milestones 25

26 Irkutsk Oil and Gas Company (Russia) Overview Key Figures Irkutsk Oil is a leading oil and gas condensate producer in the Irkutsk region Senior loan facility for EUR 90 million 8-year tenor In 2010, the company launched its gas reinjection facility and target to monetise resulting emission cuts Facility helped Irkutsk Oil to implement gas flaring cuts and restructure its debt EBRD s second stage of involvement (following equity investment in 2008), aiming at promoting environmental performance and corporate governance 26

27 Zhanros Drilling (Kazakhstan) Overview Key Figures The company provides integrated drilling services and maintenance services to oil & gas companies in West and South Kazakhstan Senior loan facility for USD 10 million 5-year tenor EBRD finances the acquisition of fracking and coiled tubing equipments for high-pressure drilling works EBRD s involvement promoted the introduction of the best health and safety standards to meet oil majors requirements 27

28 List of Contents 1. Overview of EBRD: Mission and Guiding Principles 2. EBRD Financing Capabilities and Requirements 3. EBRD Oil &Gas Portfolio, Risks Mitigation and Track Record 4. Lessons Learnt 28

29 Key Lesson 1: Project Financing Process Timeline control Financing with multi-source borrowing takes time Environmental & social due diligence is often on the critical path for large greenfield projects Essential coordination Interaction among governments, sponsors, contractors, suppliers, shippers, lending agencies, commercial banks Coordination and good communication are important Understanding of market requirements Harmonize lenders requirements (local, EU, WB, Equator) Identify untied (EBRD and IFIs) vs. tied (export credit) sources Early scoping driving terms of reference Compliance with states, sponsors, and lenders requirements 29

30 Key Lesson 2: Sustainability and Social Matters Safety Direct risks for workers safety and indirect risks for surrounding population health cannot be overemphasised Special care with sensitive sites (urban, natural, archaeological) Fairness Equitable (not always equal) division of benefits Consultation of stakeholders and robust recourse mechanism Sustainable development Managing expectations vs. realistic possibilities Community development programmes to share the benefits Transparency on revenues Engage with NGOs from an early stage Active engagement enables early detection of issues Not all NGOs are against projects Draw on the experience of IFIs like EBRD Systematic response 30

31 Thank you Contact Us Kevin Bortz Director Natural Resources Group, EBRD 31