Financing Vietnams LNG projects March 2019 Agenda Overview of - - PowerPoint PPT Presentation

March 2019

Financing Vietnam’s LNG projects

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Agenda

• Overview of South East Asia gas markets
• Overview of Vietnam gas market
• Financing Structure
• Environmental and Social Due Diligence
• Case Study

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Overview of South East Asia gas markets

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South East Asia

Country snapshots

Countries classified by gas market maturity

Vietnam Indonesia Malaysia Thailand Brunei Myanmar

2P reserves [Ranking] (1,2)

10,048 bcf [#3] 25,241 bcf [#2] 26,276 bcf [#1] 7,126 bcf [#4] 547 bcf [#6] 6,707 bcf [#5]

2C resources [Ranking] (1,2)

5,712 bcf [#4] 92,343 bcf [#1] 30,114 bcf [#2] 2,485 bcf [#5] 1,964 bcf [#6] 10,012 bcf [#3]

Current gas prod. [Ranking] (2)

0.7 bcf/d [#6] 6.4 bcf/d [#1] 6.5 bcf/d [#2] 3.0 bcf/d [#3] 1.0 bcf/d [#5] 1.7 bcf/d [#4]

Liquefaction / regas capacity

NA / NA 21 mmtpa (3) / 9 mmtpa 31 mmtpa / 10 mmtpa NA / 15 mmtpa 7 mmtpa / NA NA / NA

2019 consumption [5-yr CAGR growth]

346 bcf [+12.0%] 1,296 bcf [+2.7%] 1,275 bcf [+2.1%] 1,829 bcf [+1.2%] 138 bcf [+1.3%] 155 bcf [+24.9%]

Net importer / exporter

Neutral Net exporter (piped + LNG) Net exporter (piped + LNG) Net importer (piped + LNG) Net exporter (LNG) Net exporter (piped)

Upstream gas price policy

Piped domestic: Case by case basis Piped domestic: Fixed or w/ inflation factor LNG domestic: Netback

• n realised price (FOB

Indo) LNG export: Netback with link to JCC Piped export: Linked to MFSO Piped domestic: Indexed to MFSO LNG export: LNG netback Piped domestic: Indexed to MFSO, inflation and FX indices Piped domestic: Case by case basis LNG export: Typically 50%

• f export price

Piped domestic: Case by case basis with no linkage to any price index Piped export: Indexed to 2% Sulphur Fuel Oil Price and inflation

Market concentration NOC influence

Key: Fragmented market Concentrated market Sources: BMI, Wood Mackenzie, Giignl Notes: * denotes operator (1) Includes only gas and gas/condensate fields (2) Ranking method: From largest to smallest with the largest value assigned a #1 ranking (3) Only includes active capacity Weak to no influence Strong influence

1 1 1 1

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335 71 (230) 470 455 960 (332) 300 335 71 (226) 452 11 1,186 (431) 332 (233) (21) (800) (400) 400 800 1,200 bcf 2019 - Pipeline 2019 - LNG 2023 - Pipeline 2023 - LNG

South East Asia

Overview of gas markets, policies and regulations

Overview of South East Asia gas markets Gas consumption 2019 vs 2023 (1) Current LNG capacity

South East Asia is a collection of fragmented gas markets at various stages of developments, featuring distinctly different supply-demand dynamics and properties

Snapshot of gas supply – demand dynamics

Market with high growth potential. Mostly self sufficient for now Mature export

• riented

market with sufficient domestic supply Large market with high growth potential facing near term supply deficit Large mature export

• riented

market with sufficient domestic supply Large mature market with supply deficit and an increasing reliance on LNG imports Export

• riented

market with high growth potential 1 2 3 4 5 6 7 8 1 2 3 4 5 6 7 8 9 Current gas production (bcf/d) 1,296 1,275 1,829 138 155 346 1,444 1,388 1,921 145 378 544 500 1,000 1,500 2,000

Indonesia Malaysia Thailand Brunei Myanmar Vietnam

bcf 2019 2023 Maturity of gas market (Most mature Least mature)

Net export/(import) of gas 2019 vs. 2023

Vietnam Myanmar Brunei Thailand Malaysia Indonesia

2P reserves 2P + 2C resources 1,031 790 346 (561) (657) 219 1,257 21 31 NA 7 NA NA 9 10 15 NA NA NA 20 40

Indonesia Malaysia Thailand Brunei Myanmar Vietnam

mmtpa Liquefaction Regas

(2)

Source: BMI, Wood Mackenzie Note:

• 1. Total volumes of dry natural gas consumed in total per calendar year in the domestic market. The amount is expressed in terms of production during a 12-month period
• 2. Only includes active capacity

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Overview of Vietnam gas market

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100% Domestic production

Vietnam

Key operational metrics

Overview of key gas provinces

4,663 2,534 462 649 193 299 0 212 226 226 0 194 0 175 0 2,445 319 579 91 506 42 279 54 35 35 248 30 220 25 110 2,000 4,000 6,000 8,000 bcf 2P Gas 2C Gas 835 887 830 760 770 758 727 719 815 874 827 250 500 750 1,000 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 mmcfd

Actual Estimated

Net export/import neutral country 2P + 2C by water depth (1) Top 15 gas reserves and resources holders (1) Gas production (1)

Key gas upstream stats (1) 2P reserves 10,048 bcf 2C resources 5,712 bcf

• Avg. gas 2P+2C per field

394 bcf/field

• Avg. 2P opex / boe (2)

US$7.6

• Avg. 2P capex / boe (3)

US$9.2 1% 95% 4% Onshore Shallow Water Deepwater Ultra-deepwater

Sources: BMI, Wood Mackenzie, Giignl Notes: * denotes operator

• 1. Includes only gas and gas/condensate fields
• 2. For the remaining life of the field, and condensate included as it affects the economics
• 3. Over the entire life of field, and condensate included as it affects the economics

Cuu Long Basin

Historically, gas discovered in the Cuu Long Basin has been associated with oil

Nam Con Son Basin

Mostly gas prone region and Includes the Lan Tay/Lan Do project, which supplies around 35% of Vietnam's gas

Song Hong Basin

Upcoming gas producing region with major gas discoveries such as ExxonMobil’s Blue Whale, however the area requires more gas infrastructure to facilitate development c.350 bcf 15,760 bcf

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Vietnam

Market overview

339 346 353 424 463 544 696 710 724 833 200 400 600 800 1,000 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 bcf Consumption Production Import

Gas supply and demand

• Production expected to

increase due to additional

• utput from new projects

such as Idemitsu Kosan's Blocks 05-1B and 1C (Sao Vang, Dai Nguyet) and Rosneft’s Lan Do field, before the anticipated start-up of the giant Ca Voi Xanh in 2024

• Despite the above, production

is still insufficient to meet growing demand, with LNG imports expected to offset the remainder

• No. of players per segment in gas value chain

Market concentration

• Reserves and resources are

concentrated with the top player, PetroVietnam,

• wning c.45% of 2P + 2C

reserves(1), followed by ExxonMobil owning c.18%

• PetroVietnam through its

subsidiary PVGas controls all the onshore gas distribution infrastructure(2)

0% 25% 50% 75% 100% Upstream 0% 25% 50% 75% 100% Liquefaction 79% 21% Top 5 players Others

Market share

0% 0% Top 5 players Others 1 - 2 3 - 5 6 - 10 >10 1 - 2 3 - 5 6 - 10 >10

Commentary

n/a n/a

Key trends Key considerations

Diver- sification of gas supply sources Declining proven reserves Considerable influence of NOC across the O&G value chain

• Foreign firms must enter into joint-ventures with PetroVietnam in producing assets,

and the need to appease PetroVietnam in key contract negotiations creates a tricky

• perating environment for private and international investors
• Governmental relations would aid in this regard e.g. Russia G2G relations has helped

Gazprom build a decent position in Vietnam

• Reserves are forecast to contract over the coming years, due to natural declines and

insuffcient exploration

• The Law on Petroleum (2008) is set to be revised over the course of 2019-2020, as

Vietnam seeks to boost oil and gas exploration, attract foreign investment and promote the development of petroleum technology.

• Details of the revision are not yet available, although focus is likely to be given to

shortening key approval processes for oil and gas activities, simplifying procedures and boosting incentives for foreign and domestic investors to develop smaller, marginal fields, as well as deepwater projects

• Due to historically low gas prices and a lack of infrastructure, a large portion of

Vietnam’s gas reserves remain undeveloped

• Gas makes up c.75% of the country’s remaining reserves of c.2.4 bnboe
• The anticipated completion of PVN's Nam Con Son 2 pipeline system over 2019 will

materially expand gas transportation capacity between natural gas fields in the

• ffshore Nam Con Son basin to onshore processing stations and ease infrastructure

bottlenecks that had hindered developments to date

Sizable volumes of gas remain undeveloped

• Vietnam’s gas demand has historically been capped by domestic gas production due

to the lack of any import infrastructure

• However, the start-up of the country's first LNG import terminal in 2021 would allow

consumption to surpass production for the first time, enabling greater uptake by Vietnam's more gas-intensive industries (transportation, power, manufacturing and petrochemicals)

• Growth beyond 2024 will be further boosted by additional gas from ExxonMobil's Ca

Voi Xanh (Blue Whale) gas project (set to be Vietnam's largest gas project), where annual production could reach c.470mmcfd at peak levels according to Wood Mackenzie

Sources: BMI, Wood Mackenzie, Giignl (1) Includes only gas and gas/condensate fields and excludes direct holdings by the government (2) Offshore transportation includes JVs between IOCs and PetroVietnam

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Vietnam

Key upstream projects

• Project description:
• Blocks 48/95 & B and 52/97, located in the Malay Basin, are

estimated to contain recoverable reserves of 3.8 tcf of gas and 16mmbbls of condensate within the Ac Quy, Ca Voi and Kim Long structures

• Gas from the two PSCs is planned to supply the O Mon, Kien

Giang and Ca Mau power complexes in the southwest region of Vietnam

• Over the last two years, the government approved the field

development plan, reserves assessment report, gas price and key government guarantee undertakings and the upstream project is getting closer to FID, anticipated to take place in late H2 2019

• In Sept 2017, heads of agreements (HoAs) for the transportation

tariff and wellhead gas price were signed, however the take-or- pay clause of the GSA is still an issue being discussed

• First sales gas is expected to be achieved in 2024 at the earliest.
• Project description:
• Blocks 48/95 & B and 52/97, located in the Malay Basin, are

estimated to contain recoverable reserves of 3.8 tcf of gas and 16mmbbls of condensate within the Ac Quy, Ca Voi and Kim Long structures

• Gas from the two PSCs is planned to supply the O Mon, Kien

Giang and Ca Mau power complexes in the southwest region of Vietnam

• Over the last two years, the government approved the field

development plan, reserves assessment report, gas price and key government guarantee undertakings and the upstream project is getting closer to FID, anticipated to take place in late H2 2019

• In Sept 2017, heads of agreements (HoAs) for the transportation

tariff and wellhead gas price were signed, however the take-or- pay clause of the GSA is still an issue being discussed

• First sales gas is expected to be achieved in 2024 at the earliest.

Upstream: Blocks 52/97, 48/95 and B

• Project description:
• Ca Voi Xanh was discovered in 2011 and is Vietnam's largest gas

discovery with a gross gas volumes estimated at c.7 tcf (including CO2)

• On Jan 2017, PetroVietnam and ExxonMobil cleared a crucial

commercial hurdle by signing a framework heads of agreement

• n the development and, more importantly, the gas sales for Ca

Voi Xanh

• Ca Voi Xanh will underpin Vietnam's biggest power generation
• project. The gas will be transported onshore via an 88-km

pipeline and will initially fire-up four power plants with a combined capacity of 3,000 MW. The power plants will have a capacity of 750 MW each and are all expected to be commissioned between 2023 and 2024. A fifth-750 MW power plant may be added in 2026

• Pre-FEED was completed in 2018 and FEED was awarded in

February 2019 to Saipem. FID is expected to be taken in 2020 and first gas by 2024/2025 with plateau production maintained at c.470 mmcfd for over 20 years

• The project must also compete commercially with ExxonMobil's
• ther pre-FID projects to stand a chance of achieving sanction.
• Project description:
• Ca Voi Xanh was discovered in 2011 and is Vietnam's largest gas

discovery with a gross gas volumes estimated at c.7 tcf (including CO2)

• On Jan 2017, PetroVietnam and ExxonMobil cleared a crucial

commercial hurdle by signing a framework heads of agreement

• n the development and, more importantly, the gas sales for Ca

Voi Xanh

• Ca Voi Xanh will underpin Vietnam's biggest power generation
• project. The gas will be transported onshore via an 88-km

pipeline and will initially fire-up four power plants with a combined capacity of 3,000 MW. The power plants will have a capacity of 750 MW each and are all expected to be commissioned between 2023 and 2024. A fifth-750 MW power plant may be added in 2026

• Pre-FEED was completed in 2018 and FEED was awarded in

February 2019 to Saipem. FID is expected to be taken in 2020 and first gas by 2024/2025 with plateau production maintained at c.470 mmcfd for over 20 years

• The project must also compete commercially with ExxonMobil's
• ther pre-FID projects to stand a chance of achieving sanction.

Upstream: Block 118 (Ca Voi Xanh / Blue Whale)

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Ke Ga Wind Farm (Offshore Wind; 3,400 MW) Vung Ang 3 (Coal; 2,400 MW) Quynh Lap 1 (Coal; 1,200 MW) Son My 1 IPP (Gas; 2,000MW) Song Hau 2 (Coal; 2,000 MW) Vinh Tan 3 (Coal; 1,980 MW) Long An 2 (Coal; 1,600 MW) Long Phu 2 (Coal; 1,320 MW) Quang Trach 1 & 2 (Coal; 2,400 MW) Thai Binh 2 (Coal; 1,200 MW) Nhon Trach 3 & 4 (Gas; 2x750MW) Dung Quat 2 IPP (Gas; 750MW)

Vietnam

Key power plant projects

Ca Mau 1 &2 (Gas; 2x750MW) Nhon Trach 1 &2 (Gas; 450 &750MW) Kien Giang 1 &2 (Gas; 2x750MW; Block B) Mien Trung 1 &2 (Gas; 2x750MW; CVX) Phu My 1, 2, 4 (Gas; 2,462MW) Dung Quat 1, 3 (Gas; 2x750MW) Son My 2 (Gas; 3x750MW)

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Financing Structure

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“Bankability Analysis”

Project Risk

Completion Risk Operating Risk Supply Risk Off-take Risk Currency Risk Political Risk E&S Risk Participant Risk

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Lender(s)

Offshore Commercial Loans: Key Parameters

Introduction to Offshore Loans

Supplier

Loan Agreement Principal and Interest

Borrower

Commercial Contract Goods and Services

Typical Offshore Commercial loan structure

Borrower: Project, Project Sponsors Tenor: Up to 5 years Security: Guarantees, Negative Pledge, Debt Service Reserve Account Financial covenants, conditions etc. Benefits of Offshore Financing:

• Market Access: Access to broader

pool of capital including international banks

• End Purpose: Broader usage of funds

permitted

• Interest Rates: Attractive financing

rates given differing pool of liquidity available offshore

• Market Participation: Enables lenders

to support onshore borrowers by leveraging on international balance sheet / capital

• Potential to Raise Higher Quantum:

Ability to provide larger commitments

• Natural Hedge: Can better facilitate

natural hedging of FCY-equivalent revenues

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Lender(s)

What does an ECA loan look like?

Export Credit Agency (ECA) Supplier

Loan Agreement Principal and Interest Guarantee / Support Agreement normally 90-100% cover

Borrower

Application Documentation Commercial Contract Goods and Services

Typical ECA financing structure

Borrower: Project, Project Sponsors Tenor: 8-10 years on corporate basis and 14 years on project basis (weighted average life not exceeding 7.5 years) Security: Guarantees, Negative Pledge, Debt Service Reserve Account Financial covenants, conditions etc.

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Advantages of ECA financing

Key benefits

Long tenors High leverage Withholding tax exempt Alternative source of liquidity Attractive fixed-rate financing Low all-in cost

Why ECA financing? Typically up to 85% of the goods/services being imported (including proportion of local costs, up to 100% of the ECA Premium and up to 100% of capitalised interest costs) Up to 12 years post completion / commissioning Loans drawn as contractual works are performed Availability periods determined by the contractual arrangements between the borrower and the exporter Longer tenors (14 years) available for Project Finance structures All-in cost of financing is highly competitive versus traditional bank financing. Cost of ECA financing is less correlated to market volatility Some ECAs can fund at a fixed CIRR rate for the duration of the loan, thereby negating requirements for interest rate swaps Preserves traditional bank lines and capital markets capacity A large number of ECA backed facilities can be structured in such a way as to render them exempt from withholding tax

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Cost of ECA financing

All in pricing is typically a sum of:

ECA Premium (annualised) Base / fixed rate + Bank Margin Fees (annualised)

ECA premium is set by the ECA and depends on… Bank margins depend on… Fees depend on…

 Borrower country  Credit quality  Tenor  % of ECA cover  Can be financed & drawn pro-rata  Prevailing market conditions  Borrower country / credit risk  Tenor  % of ECA cover  Size of facility  Amount of funding  Complexity  Structure  Timeline

Other costs

 Agency fees  Legal fees  Other third-party fees, typically includes due diligence fees such as technical advisor / environmental consultant

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Main terms & conditions

Tied and Multisource Arrangement Untied Loan amount

 Up to 85% of the export contract value + proportions of third

country and local costs (maximum 30% of the export contract value) + up to 100% of the ECA premium and interest during construction, subject to ECA approval

 Not governed by the OECD Guidelines  Subject to importance of ECA country interest in the project. No

specific guideline in terms of loan amount. Considered by the ECAs on a case by case basis Lender

 Commercial banks;  ECAs as a direct lender (only applicable to certain ECAs)

Cover

 Typically 90-100% comprehensive risk cover in form of a guarantee (depending on ECA due diligence of project/corporate risk profile)

Tenor

 Drawdown (construction) period in line with the commercial

contract + usually up to 8.5-10-year repayment period (equal semi- annual installments) on a corporate basis/up to 14-year repayment period (unequal installments possible subject to ECA approval)

• n a project finance/limited recourse basis (provided that the

weighted average life of the repayment period does not exceed 7.25 years)

 The Lender will disburse monies to the supplier under the terms of

the loan agreement against appropriate documentation as may be determined in the loan agreement

 The ECAs may approve the reimbursement of previously executed

deliveries (over the last 6 months to 1 year) paid by the Borrower

 Subject to cash flow projection of the underlying project/offtake

contract

 Not governed by the OECD Guidelines and all conditions are

discretionary to the ECAs

 The Lender will disburse monies to the supplier under the terms of

the loan agreement against appropriate documentation as may be determined in the loan agreement Currency

 USD, EUR, JPY or other freely convertible currencies

Interest rate



Floating rate (applicable interest rate + margin)



Fixed rate:

• Hedging of the currency and interest rate risk to be determined in accordance with the Borrower.
• Commercial Interest Reference Rate (“CIRR”) (available with specific ECAs and subject to their approval).

Premium

 Typically payable up front but can also be financed and included into the Loan Amount.

Security

 On a corporate basis, expected to be similar to corporate borrowing including but not limited to ranking pari passu with the Borrower’s other

senior ranking financing(s). Timeline

 Typically 3-6 months for an ECA corporate facility (from signature of the mandate to financial close).

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Key Export Credit Agencies

ECAs are present globally including Europe, Asia and the Americas

EDC Canada US EXIM USA BNDES Brazil ECIC South Africa Sinosure China KEXIM/K-Sure South Korea JBIC/NEXI Japan EFIC Australia Credendo Belgium Atradius Holland UKEF UK EKF Denmark GIEK Norway EKN Sweden FINNVERA Finland Hermes Germany KUKE Poland Bpifrance France CESCE Spain OeKB Austria SACE Italy SERV Switzerland EGAP Czech Rep

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Environmental and Social Due Diligence

In supports of International Financing / ECA Support

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Debt Financing

International Financial Support

ECA Cover Banks ECAs

Typical structure

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Screening

International Financial Support

Sensitive areas; human right impact; Category A project; ≥SDR 10million How ECA Common Approaches is structured? Classification Disclosure of Projection information Projection categorization: A, B, C Benchmarking: IFC PS, WBG Safeguard Policies Local regulation: EIA, ESIA Mgmt Program: Prevent / mitigate advise impacts Monitoring procedures and reports Evaluation, Decision and Monitoring E & S Review Exchange and Disclosure of Information Exchange and Disclosure of Information Periodic Reporting

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Case Study

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 Maximize the quantum of ECA financing raised for the projects.  Take advantage of maximum flexibility available from each ECA.  Carefully manage ongoing administrative burden by harmonizing the key terms and conditions of all ECA facilities with the company's overall debt platform.  Enable the financing of direct procurement from a large number of SME suppliers from the facilities.

Key Objectives

 Investing the time to negotiate the first ECA deal and secure very flexible terms and conditions – this was used as a precedent to negotiate with other ECAs for subsequent transactions under the same program.  Innovative multi-ECA facility comprising one loan agreement with multiple ECA policies – this enabled RIL to tap support from certain ECAs where the overall procurement level was low.  Framework agreement to allow financing of relatively small individual contracts with SME suppliers.

Strategy

BPI France, Credendo, K-SURE, OeKB, SACE, SERV, UKEF

ECAs Involved

Completed India Reliance Industries Limited USD 5 billion ECAs involved:  To maximize the level of ECA financing for the EPC contracts in respect of a single project originally awarded on a ‘cash’ basis.  To obtain support for reimbursements to the borrower in respect of works already completed.  To harmonise documentation terms across 7 ECAs involved in the financing.

Key Objectives

 Obtained contractor support for the ECA process despite contracts being effective.  Stream-lined the negotiations process with the ECAs through a common Term Sheet.  USD 6.25bn of ECA facilities to be raised at the same time – this is the largest corporate-level ECA-supported transaction.

Strategy

Atradius, JBIC, KEXIM, K-Sure, NEXI, SACE, UKEF

ECAs Involved

Completed Kuwait Kuwait National Petroleum Company USD 6.25 billion ECAs involved:

Asia

24 Project Back- ground and Objectives

 Project financing facilities totalled USD 5bn including USD 2.3bn of JBIC/KEXIM direct funding and USD 2.6bn of ECAs supported debt (including support from NEXI, KEXIM, COFACE, ECGD, Hermes and SACE).  30 bank participating in transaction

ECAs / Banks Involved

Vietnam

2013 Vietnam Nghi Son Refinery and Petrochemical LLC US$5 billion Project Finance Facilities Mandated Lead Arranger

 USD 9.2bn 200 kbpa refinery and petrochemical complex in the Nghi Son Economic Zone of Vietnam and sponsored by Kuwait Petroleum Europe BV (35.1%), Idemitsu Kosan Company Limited (35.1%) Vietnam Oil and Gas Group (“PVN”) (25.1%) and Mitsui Chemicals Inc (4.7%).  The Project is one of the more complex refineries in the East of Suez that will produce light products (LPG, naphtha, gasoline, kerosene, diesel, basic petrochemicals such as aromatics and propylene) and sulphur. 50% of polypropylene output by NSRP is expected to supply the Vietnam domestic market and other products to primarily exported.  Strategic Project for the Government of Vietnam to ensure security of domestic supply of high-value refined products for PVN substituting imports.  Critical Project for Kuwait Petroleum Corporation (the crude supplier) to secure stable long-term export market. Facility Amount Tenor Borrower Nghi Son Refinery and Petrochemical LLC 1)NEXI Facility USD 1,300m 16yrs Sponsor Kuwait Petroleum Europe BV, Idemitsu Kosan Company Limited, Vietnam Oil and Gas Group and Mitsui Chemicals Inc 2) KEXIM Facility USD 440m 16yrs Financial Close June 2013 3) Other ECAs Facility USD 950m 16yrs Ranking Senior secured Format Multiple ECAs-supported limited-recourse financing Repayment 16 year facility; scuplted, 4yr construction + 1 year grace + 11yr amortising

Transaction details

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Disclaimer

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• r completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the

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