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March 2019
Financing Vietnam’s LNG projects
2
Agenda
Overview of South East Asia gas markets
Overview of Vietnam gas market
Financing Structure
Environmental and Social Due Diligence
Case Study
3
Overview of South East Asia gas markets
4
South East AsiaCountry 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 NeutralNet 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 factorLNG domestic: Netback on realised price (FOB Indo)LNG export: Netback with link to JCCPiped export: Linked to MFSO
Piped domestic: Indexed to MFSOLNG export: LNG netback
Piped domestic: Indexed to MFSO, inflation and FX indices
Piped domestic: Case by case basisLNG export: Typically 50% of export price
Piped domestic: Case by case basis with no linkage to any price indexPiped export: Indexed to 2% Sulphur Fuel Oil Price and inflation
Market concentration
NOC influence
Key:
Fragmented marketConcentrated market
Sources: BMI, Wood Mackenzie, GiignlNotes: * 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
5
335 71 (230)
470
455 960
(332)
300 335 71 (226)
452 11
1,186
(431)
332 (233) (21)
(800)
(400)
0
400
800
1,200bcf
2019 - Pipeline 2019 - LNG 2023 - Pipeline 2023 - LNG
South East AsiaOverview 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
oriented
market with
sufficient
domestic
supply
Large market
with high
growth
potential
facing near
term supply
deficit
Large mature
export
oriented
market with
sufficient
domestic
supply
Large mature
market with
supply deficit
and an
increasing
reliance on
LNG imports
Export
oriented
market with
high growth
potential
0
1
2
3
4
5
6
7
8
0123456789
Current gas production (bcf/d)
1,296 1,275
1,829
138 155346
1,444 1,388
1,921
145378 544
0
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
VietnamMyanmarBruneiThailandMalaysiaIndonesia
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 NA0
20
40
Indonesia Malaysia Thailand Brunei Myanmar Vietnam
mmtpa
Liquefaction Regas
(2)
Source: BMI, Wood MackenzieNote: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 period2. Only includes active capacity
6
Overview of Vietnam gas market
7
100%
Domestic production
VietnamKey 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
0
2,000
4,000
6,000
8,000
bcf
2P Gas 2C Gas
835 887 830 760 770 758 727 719 815 874 827
0
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, GiignlNotes: * denotes operator1. Includes only gas and gas/condensate fields2. For the remaining life of the field, and condensate included as it affects the economics3. Over the entire life of field, and condensate included as it affects the economics
Cuu Long BasinHistorically, gas discovered in the Cuu Long Basin has been associated with oil
Nam Con Son BasinMostly gas prone region andIncludes the Lan Tay/Lan Do project, which suppliesaround 35% of Vietnam's gas
Song Hong BasinUpcoming gas producing region with major gas discoveries such as ExxonMobil’s Blue Whale, however the area requires more gas infrastructure to facilitate development
c.350bcf
15,760bcf
8
VietnamMarket overview
339 346353 424 463
544
696 710 724833
0
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 output 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, owning 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
0 1 - 2 3 - 5 6 - 10 >10
0 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 operating 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 offshore 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
9
VietnamKey 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
on 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
other 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
on 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
other pre-FID projects to stand a chance of achieving sanction.
Upstream: Block 118 (Ca Voi Xanh / Blue Whale)
10
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)
VietnamKey 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)
11
Financing Structure
12
“Bankability Analysis”
Project Risk
Completion Risk
Operating Risk
Supply Risk
Off-take Risk
Currency Risk
Political Risk
E&S Risk
Participant Risk
13
Lender(s)
Offshore Commercial Loans: Key ParametersIntroduction to Offshore Loans
Supplier
Loan Agreement
Principal and Interest
Borrower
Commercial Contract
Goods and Services
Typical Offshore Commercial loan structureBorrower: 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
14
Lender(s)
What does an ECA loan look like?
Export Credit Agency (ECA)
Supplier
Loan Agreement
Principal and Interest
Guarantee / Support Agreementnormally 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.
15
Advantages of ECA financingKey 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
16
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
17
Main terms & conditions
Tied and Multisource Arrangement Untied
Loan amount
Up to 85% of the export contract value + proportions of thirdcountry and local costs (maximum 30% of the export contractvalue) + up to 100% of the ECA premium and interest duringconstruction, 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 theECAs 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 commercialcontract + usually up to 8.5-10-year repayment period (equal semi-annual installments) on a corporate basis/up to 14-year repaymentperiod (unequal installments possible subject to ECA approval)on a project finance/limited recourse basis (provided that theweighted average life of the repayment period does not exceed7.25 years)
The Lender will disburse monies to the supplier under the terms ofthe loan agreement against appropriate documentation as may bedetermined in the loan agreement
The ECAs may approve the reimbursement of previously executeddeliveries (over the last 6 months to 1 year) paid by the Borrower
Subject to cash flow projection of the underlying project/offtakecontract
Not governed by the OECD Guidelines and all conditions arediscretionary to the ECAs
The Lender will disburse monies to the supplier under the terms ofthe loan agreement against appropriate documentation as may bedetermined 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).
18
Key Export Credit AgenciesECAs are present globally including Europe, Asia and the Americas
EDC Canada
US EXIM USA
BNDES Brazil
ECICSouth Africa
Sinosure China
KEXIM/K-SureSouth Korea
JBIC/NEXIJapan
EFICAustralia
CredendoBelgium
AtradiusHolland
UKEFUK
EKFDenmark
GIEKNorway
EKNSweden
FINNVERAFinland
HermesGermany
KUKEPoland
BpifranceFrance
CESCESpain
OeKBAustria
SACEItaly
SERVSwitzerland
EGAPCzech Rep
19
Environmental and Social Due DiligenceIn supports of International Financing / ECA Support
20
Debt Financing
International Financial Support
ECA Cover
BanksECAs
Typical structure
21
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 PoliciesLocal regulation: EIA, ESIA
Mgmt Program: Prevent / mitigate advise impactsMonitoring procedures and reports
Evaluation, Decision and Monitoring
E & S Review
Exchange and Disclosure of Information
Exchange and Disclosure of Information
Periodic Reporting
22
Case Study
23
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 aprecedent 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 tapsupport 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, UKEFECAs 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, UKEFECAs 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 ofECAs supported debt (including support from NEXI, KEXIM, COFACE, ECGD, Hermes and SACE).
30 bank participating in transaction
ECAs / Banks Involved
Vietnam
2013 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 andsponsored by Kuwait Petroleum Europe BV (35.1%), Idemitsu Kosan Company Limited (35.1%) Vietnam Oil andGas 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% ofpolypropylene output by NSRP is expected to supply the Vietnam domestic market and other products to primarilyexported.
Strategic Project for the Government of Vietnam to ensure security of domestic supply of high-value refinedproducts 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
FormatMultiple ECAs-supported limited-recourse financing
Repayment16 year facility; scuplted, 4yr construction +
1 year grace + 11yr amortising
Transaction details
25
26
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