15 - 16 October 2015
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FPSO Asset Integrity Management
and Life Extension Forum
Improving cost efficiencies and minimizing shutdown time whist increasing
vessel productivity, value and safety
FINANCING FPSO LIFE
EXTENSION PROJECTS:
CRITICAL SUCCESS FACTORS
FPSO Asset Integrity Management and Life Extension Forum
15-16 October 2015, London
DISCLAIMER
This document has been prepared by SG Corporate & Investment Banking (“SG CIB”), a division of Societe Generale.
In preparing this document, SG CIB has used information available from public sources. No express or implied representation or warranty as to the accuracy or completeness of such information is made by SG CIB, nor any other party. The accuracy, completeness or relevance of the information which has been drawn from external sources is not guaranteed although it is drawn from sources believed to be reliable. SG shall not assume any liability in this respect.
Any views, opinions or conclusions contained in this document are indicative only, are not based on independent research and do not represent an offer or commitment, express or implied, on the part of SG to underwrite or purchase any securities or any financial instrument(s) referred to herein or to commit any capital, nor does it commit SG to enter into an underwriting agreement or similar commitment to finance, such an offer being subject to contract, the completion of satisfactory due diligence and all necessary credit, management and other approvals being obtained.
Any information in this document is purely indicative and has no contractual value. The contents of this document are subject to amendment or change at any time and SG CIB will not notify any party of any such amendment or change. No responsibility or liability (express or implied) is accepted for any errors, omissions or misstatements by SG CIB except in the case of fraud or any other liability which cannot lawfully be excluded. This document is of a commercial and not of a regulatory nature.
The commercial merits or suitability or expected profitability or benefit of any transaction described in this document to any party’s particular situation should be independently determined by the said party. Any such determination should involve an assessment of the legal, tax, accounting, regulatory, financial, credit and other related aspects of any such transaction. SG CIB shall not be liable for any failure of any party to obtain such information and advice.
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This document is issued in the UK by the London Branch of SG. SG is a French credit institution (bank) authorised by the Autorité de Contrôle Prudentiel (the French Prudential Control Authority). SG is subject to limited regulation by the Financial Services Authority in the UK. Details of the extent of our regulation by the Financial Services Authority are available from us on request.
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CONTENTS
SOCIETE GENERALE IN BRIEF
FPSO LIFE EXTENSION: CONCEPTS
DEFINITION
6
REQUIREMENTS
7
MARKET FOR FPSO LIFE EXTENSIONS
HISTORY
8
OPPORTUNITIES
9
FINANCING
FINANCING OF FPSO LIFE EXTENSIONS WORK
10
FINANCING OF CONTRACTOR-OWNED FPSOS: REQUIREMENTS
11
FINANCING OF CONTRACTOR-OWNED FPSOS: RISK PARAMETERS
12
FPSO DEBT REFINANCING: CASE STUDY (1)
13
FPSO DEBT REFINANCING: CASE STUDY (2)
14
SOCIETE GENERALE IN BRIEF
Leading global bank
30 million
clients worldwide
€2,7 billion
Group net income
148,000
employees
€23.6 billion
net banking income
Financial rating
A Standard & Poor’s A Fitch
AA (low) DBRS A2 Moody’s
French Retail Banking
International Retail Banking & Financial Services Global Banking and Investor Solutions
A STRONG UNIVERSAL BANK,
SERVING OUR CUSTOMER AND THE ECONOMY,
BUILT ON 3 COMPLEMENTARY PILLARS
76
countries
Over 60% of staff are based outside of mainland France
5
Our Business
SG’s Shipping/Offshore Group selectively focuses on three asset segments: Offshore, LNG shipping and industrial shipping
Financing Solutions
Corporate lending: Full recourse financing to investment grade and sub-investment grade counterparties
Project Finance & Advisory: Limited recourse financing underpinned by long term charters
Capital Markets: Project bonds, high-yield bonds and equity placement our integrated approach
Export Finance: Export Credit Agencies backed loans
Leasing: Both on- and off-balance-sheet financings through domestic and cross border leases
SG SHIPPING & OFFSHORE FINANCE
LNG shipping FPSOs Offshore drilling Tankers Dry bulk Car Carriers Containers Others
Franchise with professionals in Paris, London, Hong Kong and Sao Paulo
Joint Lead Arranger and Swap Bank
2014 UNITED STATES Delta House Floating Production System Senior Secured Credit Facility
USD 400,00,000
Initial Bookrunning Mandated Lead Arranger and Swap Bank
2014 BRAZIL
USD 1,450,000,000
Financing of the FPSO Cidade de Marica
Mandated Lead Arranger
2014 THAILAND & MALAYSIA
USD 225,000,000
Refinancing of West Desaru MOPU (FPF5) and Jasmine Venture FPSO (FPF3) Financing of the FPSO Cidade
de Saquarema
Initial Bookrunning Mandated Lead Arranger, Co-Market Hedge Coordinator and Hedge Provider 2015 BRAZIL USD 1,550,000,000 USD 450,000,000 Co-arranger 2015 VARIOUS LOCATIONS Refinancing of 6 jack-up rigs USD 1,685,000,000
Lead Arranger and Hedging Bank
2015 BRAZIL Financing of the FPSO Cidade de Campos dos Goytacazes MV29
FPSO LIFE EXTENSION: DEFINITION AND CONCEPTS
Existing location versus redeployment
What is a FPSO life extension?
● Extension of the vessel’s initial design and economic life by way of repairs, modification or overhaul to
address the following requirements:
On the existing location: to continue production due to a variety of reasons: new well stream, new
production phases, new tie-ins, tail-end production or increased oil recovery
=> Many fields have historically experienced extended life, hence a sustained demand for FPSO life
extensions
Redeployment: to use a FPSO coming off contract in another location
=> We have also seen several redeployments in the past (20+ vessels)
What does life extension apply to?
● Any FPSO type: conversion or newbuild
● Any FPSO ownership structure: owned by contractors or field operators
● Other production related assets like FSOs
Where is life extension work done?
● At sea (in situ), for most of life extensions on existing locations
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FPSO LIFE EXTENSION: REQUIREMENTS
Cost effectiveness is key, especially in the current low oil price environment
Cost and time effective
● Pressure on production costs from field operators to maintain their profitability in the current low oil price
environment
● Life extensions on existing locations may be particularly cost and time effective (continuous production)
Safe and technically viable
● Asset integrity studies on key vessel components: hull, topsides, mooring, turret, offloading buoys, turbines
● Review of vessel historical performance (based on data collected over years on vessel’s condition,
maintenance requirements, incidents, etc)
● Classification of the vessel with relevant class societies
Regulation abiding
MARKET FOR FPSO LIFE EXTENSIONS: HISTORY
Out of the current 165 FPSO fleet, at least 30 units have experienced life extensions or redeployments
FPSO life extension on the existing location
● At least 10 existing FPSOs are or will be subject to life extensions on their
initial location, beyond their design life
● Example: Espoir Ivoirien FPSO, owned by BW Offshore and located
offshore Ivory Coast: 10-year initial charter period (2002 – 2012), 4-year firm extension (2013 – 2017), 19-year options (2017 – 2036).
=> Potential total FPSO life of 33-years versus shorter initial design life
FPSO life extension on other locations (redeployment)
● At least 20 existing FPSOs are or will be redeployed, beyond their initial
design life
● Example: Petrojarl I FPSO, owned by Teekay Offshore Partners: after 28
years of operations in the North Sea on multiple fields, the vessel is expected to be redeployed offshore Brazil in 2016 under a 5-year charter contract.
=> Potential total FPSO life of 33-years versus shorter initial design life
Espoir Ivoirien FPSO
Source: BW Offshore
Petrojarl I FPSO
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MARKET FOR FPSO LIFE EXTENSIONS: OPPORTUNITIES
Low oil price environment may actually lead to opportunities
Increasing opportunities due to the ageing existing fleet
● Out of the 165 existing FPSOs, most have a design life of under 20-year
● Although design life has been increasing recently for bigger vessels (25 years), some existing units are approaching the end of their design life, hence candidates for life-extension are expected to grow
Low oil price environment may lead field operators to focus on producing
projects (brownfield) as opposed to exploration projects (greenfield)
● Many field operators have reported capex cuts but opex budgets seem to be less affected
● Production break-even costs for mature fields are much lower than new projects and may still be lower than
the current oil price (Brent of USD 52/ barrel as per 7 October 2015)
FINANCING OF FPSO LIFE EXTENSION WORK
Operator-owned versus contractor owned vessels
Cost ranges
● Life extension on existing locations: USD [10-100]m
● Redeployments: USD [50-500]m
Costs recovered via milestones versus charter rate
● For operators-owned vessels: via milestone payments. If these payments are financed by debt, such debt is
typically raised by field operators at corporate level
● For contractor-owned vessels: either (i) via charter rate to contractor during extension or (ii) via milestone
payments to contractor
Asset releveraging with debt from FPSO banks is possible
● Contractor may (re)raise debt at the project level (i.e. on a “limited recourse basis”) to be repaid by future charter rate while ensuring a satisfactory equity return
● Banks can use a typical FPSO financing structure for releveraging (especially if the asset was project financed in its initial economic life)
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FINANCING OF CONTRACTOR-OWNED FPSOS: REQUIREMENTS
Usual limited recourse financing structure
Typical FPSO financing security package
● Mortgage
● Assignment of charter contract (if possible with acknowledgement from charterer or quiet enjoyment letter)
● Assignment of insurances
● Account pledge (e.g. revenue account, debt service reserve account)
● Special vehicle borrower’s share pledge
Typical FPSO financing requirements
● Covenants
Minimum debt service cover ratio (revenues / debt service)
Debt amount and tenor based on charter cash flows
Dividend subject to certain conditions
Ownership covenant
Negative pledge, no disposal / sale of the FPSO, etc
● Reporting
FPSO performance reports (with uptime)
FINANCING OF CONTRACTOR-OWNED FPSOS: RISK PARAMETERS
Risks Typical events Counterparty /
analysis Mitigants Life extension work technical risk
•
Delays•
Costs overruns•
Contractor•
Suppliers / Subcontractors•
Shipyard•
Experienced contractor / suppliers / subcontractors shipyard, with proven track record•
Refund guarantee to underpin shipyard obligations•
Warranties / Liquidated damagesCharter payment risk
•
Charter rate is not paid•
field operator (as charterer)•
JV (if project charterer)•
Quality of charterer•
Terms of the charter contract•
Field production profile (if applicable)•
Offshore account structure•
Priority of charter payments in the project cash waterfallOperating risk
•
Vessel does notperform
•
Contractor (as vessel operator)•
Reputable operator with requisite experience•
Content of the O&M contract•
Proven ship technologyForce Majeure risk
•
Force Majeure event•
field operator•
Insurer•
Insurance•
Terms of the charter contractPolitical / Country risk
•
Confiscation, expropriation, nationalisation, or deprivation of the vessel•
field operator•
Insurer•
Offshore borrower / account structure•
Offshore flagging – lender friendly jurisdiction•
Payments security mechanism•
Insurance13
FPSO DEBT REFINANCING: CASE STUDY (1)
Societe Generale participated in the refinancing of two vessels in 2014
Project characteristics
● West Desaru MOPU (FPF5) offshore Malaysia and Jasmine Venture FPSO (FPF3) offshore Thailand
● Owned by a joint venture between First Reserve and Petrofac
● USD 225m debt financing, tenor of 6 years, closed in August 2014
● Financing secured by the two vessels and to be repaid by the cashflows generated in the respective charter contracts
Combination of redeployment and life extension
● West Desaru MOPU, built in 1976 and redeployed from Australia to Malaysia in 2013
● Jasmine Venture FPSO, converted in 1999 and producing on the Jasmine field since 2005
● It has been reported that Mubadala Petroleum (operator of Jasmine field) is looking for another FPSO for this field for an additional period of 5 to 10 years
Jasmine Venture FPSO (FPF3, ex Buffalo Venture)
Source: Petrofac
West Desaru MOPU (FPF5, ex Ocean Legend)
FPSO DEBT REFINANCING: CASE STUDY (2)
Societe Generale co-arranged the financing of a FPSO redeployment in 2013
Project characteristics
● The FPSO Xikomba worked during 8 years offshore Angola and was disconnected in 2011
● After refurbishment the vessel was renamed N’Goma and was redeployed in late 2014 to another field offshore Angola under a new 12-year charter contract
● Owned by a joint venture between SBM Offshore, Sonangol and Angolan Offshore Services
● USD 600m debt financing, closed in August 2013
● Financing secured by the vessel and to be repaid by the cashflow
generated by the new charter contract N’Goma FPSO (ex Xicomba)
15
CONCLUSION
Debt finance is available for the right FPSO life extension or redeployment projects
Existing market with track record
Historically nearly 20% of the global FPSO fleet has been subject to life extension or redeployment
Market expected to grow
In the current low oil price environment demand for these two cost-effective and safe solutions is expected to continue to grow, as field operators need to maintain existing production while reducing exploration costs
Project finance has been tested
For contractor-owned vessels, life extension and redeployment costs can be and have been debt financed on a limited recourse basis (project-financed)
Project finance is available
Debt finance for FPSO life extension or redeployments is available for projects with satisfactory parameters: contractor track record, vessel history, charter counterparty and location
