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					NOT AN OFFICIAL UNCTAD RECORD




          10th African Oil & Gas Trade & Finance
                 Conference & Exhibition
       2 & 5 April 2006, Hotel El Aurassi, Algiers

             FINANCING LNG PROJECTS
                                    3rd April 2006


   Stuart McAlpine, Partner
   Orrick, Herrington & Sutcliffe
Contracting for and financing LNG assets




April 2006
The “LNG chain”


   Gas extraction


   Transmission


   Liquefaction


   Storage


   Transport


   Re-gasification


   Distribution




                      3
Who are the investors?


   Gas Suppliers


   LNG purchasers


   Governments


   Trading houses


   Ship owners


   Terminal owners/operators




                                4
LNG Purchasers


Investment might cover:


   Interest in production sharing arrangements


   Liquefaction/re-gasification plant assets


   Operation of liquefaction/re-gasification plant assets


   Interest in LNG tonnage




                                        5
Other Investors

Government entities
   Export phase participation

   Financial strength


Trading Companies
   Play a major role in Asian trades

   Facilitate sale by identifying markets and negotiating contracts

   Often own a small piece of a project


Local entities
   Depend on local political leverage

   Might seek a share ownership of LNG carrier, participation in production sharing
    contract or license

   Major supplier or contractor


                                           6
Financing issues


   Commercial banks


   Export Credit Agencies


   Capital markets


   Private equity


   Inter-creditor issues




                             7
Financing issues         (continued)



Type of financing driven by:

   Experience and creditworthiness of sponsors


   Type and location of terminal facilities


   Condition of capital markets


Project company structure

   Works for both debt and equity investors

   Separation of assets/liabilities from those of sponsors’

   Is flexible, allowing for different levels of participation and risk exposure




                                         8
Financing issues        (continued)




   Parent guarantees and security


   Restrictions on use of facilities – negative covenants/negative pledge provisions


   Take or pay provisions


   Need to disclose proprietary information in connection with financing


   Potential liability to creditors for misrepresentation in connection with such

    disclosure


   Timing – dovetailing readiness of project documentation



                                        9
Documentation

Key Documents:

   Gas Supply Contract

   LNG Sales Contract

   EPC Contracts

   Shipping documentation

   Shareholder Agreements

   Technical Services Agreements

   LNG Project Agreement

   Letters of Intent, Heads of Agreement, MOUs


                                      10
Gas Supply Contracts


   Quantities


   Transportation


   Price


   Scheduling


   Delay Provisions


   Force Majeure


   Termination




                       11
LNG Sales Contracts


Same list as for Gas Supply, but also:


   Transportation – ex-ship or FOB?


   Short/long term


   Excess quantities




                                         12
Force Majeure – some pointers


   A superior force


   An event which can neither be anticipated nor controlled


   Consequences could not have been avoided through the exercise of due care


   Allocation of force majeure risk as between seller and buyer


   Incidence of force majeure will suspend affected party’s performance obligations




                                       13
Force Majeure – principal discussion points

   Address risk and harmonize in project documents

   Will the clause cover LNG buyer’s customers?

   Does LNG buyer have to continue to pay seller’s transportation costs during a

    force majeure event preventing buyer from taking LNG?

   Can force majeure be affected by negligence?

   Unexpected depletion in recoverable reserves: force majeure event or breach of

    seller’s reserves warranty

   Termination right if force majeure is lengthy

   Will delay in construction of the facilities or the vessel(s) constitute force

    majeure?

                                         14
Force Majeure – principal discussion points (continued)


   Allocation of remaining LNG supplies between buyer under sales contract and

    other purchasers of LNG from LNG plant

   Allocation of LNG purchases between seller under sales contract and other

    exporters of LNG to buyer’s receiving facility

   Future obligations of parties to sell or purchase quantities of LNG that could not

    be timely delivered/received due to force majeure

   Payments made during disputed force majeure period to be held in escrow

    pending determination of validity of a force majeure claim

   Vessels to be covered by force majeure clauses where there is loss or damage

    while carrying LNG in separate trade


                                        15
LNG shipping issues


   Important issues – integral to the success of the entire project


   Ex-ship versus FoB


   Sales contract obligations to converge with availability of transportation


   Availability and cost of LNG carriers in world market not dedicated to a specific

    LNG trade


   Potential to utilise short term excess shipping capacity




                                        16
LNG shipping issues – ex-ship


   Method of calculation of LNG transportation fee


   Cost allocation in case of carrier or terminal upgrading needs


   Demurrage/excess boil-off costs if seller’s LNG carrier is not timely berthed and

    unloaded


   Seller’s liabilities in contract where there would be no liability in tort (under

    local law)




                                         17
LNG shipping issues – FoB issues


   Liability regime governing buyer’s use of loading facilities


   Financial guarantees from buyer or vessel owners


   Allocation of cost for upgrading of tanker or loading/receiving terminal to

    ensure compatibility


   Seller to pay demurrage/excess boil-off if it does not timely berth and load

    buyer’s LNG tanker




                                        18
Current trends


   Movement from fixed price, long term supply contract to market based, flexible

    framework


   Delivery schedules – greater flexibility


   LNG spot market


   The above current trends create a stronger negotiating position for LNG

    importers


   More uncertainty in developing additional LNG infrastructure


   Impact on ability to project finance an LNG project



                                         19
       10th African Oil & Gas Trade & Finance
              Conference & Exhibition
    2 & 5 April 2006, Hotel El Aurassi, Algiers

          FINANCING LNG PROJECTS
                                 3rd April 2006


Stuart McAlpine, Partner
Orrick, Herrington & Sutcliffe

				
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