Corporate Finance Webinar Energy Finance 2015 Tom Sanzillo,
Director of Finance March 5, 2015 Slide 2 Overview Economic
Analysis Financial Analysis Corporate and Project Analysis and Risk
Risks from Public Opposition Purpose of IEEFA Finance 2015 Slide 3
BIG PICTURE WORLD, NATION, MARKETS, REGION Economics Slide 4
Economic Measures What is economy? GDP Gross Domestic Product: How
economy/ countries/ markets/ regions work Types & size of
sector: agriculture, energy, manufacturing, mining, energy, retail
Most important for economy: Growth Market profitability Project
Profits: mines, plants, ports, & rail Corporate Profits: pure
play, integrated companies, diversified Critical role of extractive
industries Coal/oil economics: Reserves, supply/demand (tons,
barrels, cubic feet), location Price of coal/oil/natural gas/power
from plants/electricity Cheap power household budgets and business
Competition Within coal Between coal & other energy sources
Slide 5 CountrySize 2013 GDP (trillions) 2013 % GDP Growth
Australia$1.62.5% Bangladesh$0.156.0% Canada$1.82.0% China$9.27.7%
India$1.95.0% Indonesia$0.95.8% Italy$2.1-1.9% Japan$4.91.6%
Mozambique$0.027.4% Philippines$0.277.2% Poland$0.521.7% South
Africa$0.351.9% Thailand$0.41.8% Turkey$0.84.1% United
Kingdom$2.71.7% United States$16.82.2% Vietnam$0.175.4% Slide 6
Adanis Corporate Structure Slide 7 Example of Corporate
Presentation Mining Company: Cloud Peak Link to presentation:
http://tinyurl.com/qzfd5gp http://tinyurl.com/qzfd5gp Slide 8
LITTLE PICTURE INDUSTRY, COMPANY, PROJECT Finance Slide 9 Income
Statement: The Business/Production Process Revenues Money In: How
much buying and selling? Coal = $ Per ton Power = Currency/Megawatt
Hour (MWh) Ports = Fees Oil/Liquefied natural gas (LNG) =
$barrel(bbl); Gas $/cubic foot (cf); Shipping miles per ton
Expenses Money Out: Cost of Production: What does it cost to make a
sale happen? Labor Fuel Chemicals Electricity Machines Facility
Maintenance Reclamation Corporate Administration Operating Profit
or Loss Is the company or project a going concern? Worthy of
Investment? Earnings Before Interest, Taxes, Depreciation,
Administration (EBITDA) Slide 10 Income Statement 10 Item of
Expense Description InterestInterest on Short & Long Term Debt
TaxesFederal, State, Local RoyaltiesUsually Extraction Related
DepreciationAnnual depletion of property, plant, materials
Corporate Administration Front Office Net Income/LossComprehensive
Income or Loss Slide 11 Income Statement: Understanding Debt Why
Important? Extraction, Power rely heavily on debt. What is function
of debt? Raises money to build plants/mines/ports -- assets. Assets
produce revenue/pay back debt and profit. Or not. How much is too
much debt, overleverage? When operating profit cannot cover
interest. (taxes, depreciation and other expenses) Slide 12 Income
Statement: Where Does Debt Come From Borrowing: Debt and Equity
Private Investment Banks Bonds, Private Equity, Project Related
Financing JP Morgan, Morgan Stanley, Citi, UBS. Public Banks
Development Banks - International Financial Institutions (IFI)
multiple countries provide capital to spur development Company
Equity: Stock, Cash, Assets Borrow from Shareholders Combination of
all three is not unusual in energy. Slide 13 CORPORATE AND PROJECT
ANALYSIS Slide 14 Corporate and Project Analysis Public/Private
Corporations drive project development Similarity Growth
Differences of enterprise wide missions Profit versus, Development
Policy Project Finance is a piece of broader corporate strategy and
finance Corporate parents and subsidiaries Business and Capital
Markets Policy and Development Goals of Country Slide 15 Companies
and Projects Require Investment: All investments have risks Profit:
Investment + time and effort must return revenue - cover costs,
spur more investment Risks to Successful Projects Economic GDP
Health, Markets, Demand/Supply, Price Business Leadership, Vision,
Policy, CEO and Board Finance Asset Allocation -
Revenue/Expense/Profit/Loss Good Management: Board/Managers Setting
Policy/Execution Legal & Regulatory Good Citizen, Good Partner,
Good Neighbor Traditional Concepts of Political Risk Good
Negotiator, Knows How To Get Things Done Cumulative Risk: Key
Financial Concept Slide 16 THE RISK OF PUBLIC OPPOSITION:
REPUTATIONS CORPORATE/ PROJECT SUCCESS Slide 17 Risk of Public
Opposition Dynamic of Reputational Politics Government/Business
Corporate/government actions have symbolic importance to corporate
employees, governments, market stakeholders, public Sending Signals
Actions policy, program, investments, taxes, law/regulation,
budgets, sanctions, fines, delays. Civil society attaches positive
and negative connotations to these actions. Part of the Brand, part
of the profile Instant Communication instant profile All Forms of
Corporate/Government Success build reputation All Forms of
Corporate/Government Failure hurt reputation Slide 18 Benefits of
Good Reputation Company Growth High Salaries for Corporate Leaders
Elections for Government Leaders Power Positions of Ministers
Public Opinion and Editorial Support Creates space for consumer
relations and public benefits Access to Public and Private
Benefits: Profit Enhancement New Laws, Regulations, Budgets,
Contracts, Cash Approval of Investors (Banks, Shareholders)
Favorable Regulatory Outcomes and Financing Political Protection:
Markets, Oversight, Leverage over competition and opposition Risk
of Public Opposition Slide 19 What Undermines Corporate
Reputations? Financial Losses Stock decline, dividend cuts, delayed
or canceled projects, closing facilities, shrinkage Changing
perception in business world rating agencies, analysts. Upgrades
and Downgrades Project Delays, Hearings, Investigations, Reviews
Something is Wrong Improves accountability new forums for issues
Costly to project cuts into profits Violations of Law Exposes -
Media Loss of Allies business, professional, political, editorial,
regulatory Breaking Public Promises (Polls) price to consumers,
commitments to communities, environmental agreements,
legal/contract/labor disputes go to management and integrity.
Unfair Advantage political contributions tied directly to bad
activity Risk of Public Opposition Slide 20 What Undermines
Government Reputations? Unmanageable government finances Tax
increases, expenditure cuts, weak economy, credit downgrades.
Program failure: delayed or canceled projects, closing facilities,
shrinkage Changing perception in business world rating agencies,
audits, oversight studies. Cost Overruns: Something is Wrong
Exposes Media Loss of Allies business, professional, political,
editorial, regulatory Breaking Public Promises price to consumers,
commitments to communities, environmental agreements,
legal/contract/labor disputes go to management and integrity.
Leadership Crisis polls, scandals, elections, policy/political
fights Unfair political contributions tied directly to bad activity
Risk of Public Opposition Slide 21 There is no way we could have
ever predicted that we would become the lightning rod for a debate
around fossil fuels and the development of the Canadian oil sands.
Russ Girling, CEO, TransCanada,2011 Lead Sponsor of Keystone
Pipeline Risk of Public Opposition Slide 22 APPENDIX Slide 23
CountryAgency U.S.Securities and Exchange Commission
www.sec.govwww.sec.gov Australia Australian Securities and
Investments Commission http://asic.gov.au/about-asic/
http://asic.gov.au/about-asic/ Bangladesh Bangladesh Securities and
Exchange Commission http://www.sec.gov.bd/ http://www.sec.gov.bd/
Canada 13 Provincial Securities Regulators
http://www.osc.gov.on.ca/en/home.htm Ontario Securities Commission
http://www.osc.gov.on.ca/en/home.htm Alberta Securities Commission
http://www.albertasecurities.com/Pages/home.aspx China China
Securities Regulatory Commission (EN):
http://www.csrc.gov.cn/pub/csrc_en/http://www.csrc.gov.cn/pub/csrc_en/
(CH):
http://www.csrc.gov.cn/pub/newsite/http://www.csrc.gov.cn/pub/newsite/
Indonesia Indonesian Capital Market Supervisory Agency
http://www.bapepam.go.id/ http://www.bapepam.go.id/ IndiaSecurities
and Exchange Board of India http://www.sebi.gov.in/sebiweb/
http://www.sebi.gov.in/sebiweb/ Appendix Slide 24 CountryAgency
Japan Financial Services Agency (JPN): http://www.fsa.go.jp/ (EN):
http://www.fsa.go.jp/en/index.htmlhttp://www.fsa.go.jp/http://www.fsa.go.jp/en/index.html
Mozambique Limited Disclosure: Summary of Accessible information
http://www.doingbusiness.org/data/exploreeconomies/mozambique/protecting-
minority-investors/
http://www.doingbusiness.org/data/exploreeconomies/mozambique/protecting-
minority-investors/ http://www.mic.gov.mz/ http://www.mic.gov.mz/
http://www.cpi.co.mz/index.php/en/2012-03-14-03-21-37/useful-links
http://www.cpi.co.mz/index.php/en/2012-03-14-03-21-37/useful-links
Philippines Securities and Exchange Commission Republic of the
Philippines http://www.sec.gov.ph/ http://www.sec.gov.ph/
PolandMinistry of Justice Poland (Polish version access to company
info) http://ms.gov.pl/pl/http://ms.gov.pl/pl/ South
AfricaFinancial Services Board of South Africa
https://www.fsb.co.za/Pages/Home.aspxhttps://www.fsb.co.za/Pages/Home.aspx
Thailand Securities and Exchange Commission (TH):
http://www.sec.or.th/TH/Pages/home.aspx (EN):
http://www.sec.or.th/EN/Pages/Home.aspxhttp://www.sec.or.th/TH/Pages/home.aspx
http://www.sec.or.th/EN/Pages/Home.aspx Turkey Capital Markets
Board of Turkey http://www.cmb.gov.tr/http://www.cmb.gov.tr/
SermayeP iyasa Kurulu http://www.spk.gov.tr/http://www.spk.gov.tr/
United Kingdom Companies House
https://www.gov.uk/government/organisations/companies-
house/about/about-our-serviceshttps://www.gov.uk/government/organisations/companies-
house/about/about-our-services VietnamState Securities Commission
of Vietnamwww.ssc.gov.vnwww.ssc.gov.vn Links to Securities and
Financial Regulators
http://www.world-stock-exchanges.net/regulators.html
http://www.world-stock-exchanges.net/regulators.html
https://www.nrd.ca/nrd/userguide/english/helpful_info/securities_administrators.ht
m
https://www.nrd.ca/nrd/userguide/english/helpful_info/securities_administrators.ht
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