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Energy Infrastructure: Understanding Risk, Optimizing Value
Joint Capability Statement Oil & Gas
Issued by ILF Consulting Engineers and Infrastructure Development Partnership
As the search for oil and gas assets pushes new technological and political frontiers, developers require greater clarity and certainty on risk and opportunity.
With decades of combined experience, ILF and IDP offer developers strategic commercial and engineering support to de-risk and deliver projects to a final investment decision.
Introduction
Investment in the oil and gas sector has surged dramatically over the last decade. But many emerging regions pose new and significant challenges to developers, who find themselves in a complex and evolving risk landscape.
Managing risk and optimizing investment value require a disciplined approach to risk and the ability to integrate multiple disci-plines across the investment life cycle.
ILF and IDP offer blended advisory services across multiple disciplines delivering an au-thentic strategic perspective to project de-velopers. This is our Unique Selling Point. Developers can accelerate the opportunity to maximize value in the investment life cy-cle by focusing on the front-end phases of project development where the developer’s influence is at its peak and relative Capex expenditure is lower.
We help clients to realize this value by ap-plying a rigorous project de-risking process that enables more informed decisions during the Feasibility, Conceptual and Front-End Engineering and Design (FEED) stages lead-ing up to a Final Investment Decision (FID).
We look forward to the opportunity to work with your company.
Our key capabilities are
• Project definition
• Market analysis
• Engineering, commercial and non-technical de-risking
• Commercial and legal structuring
• Project management
• Financial structuring and transaction advisory
Illustrative previous project engagements
• East Africa oil export development: Kenya, Uganda, South Sudan (Ethiopia, Kenya, Djibouti)
• Kurdistan oil export development
• Southern Gas Corridor Projects, including TAP, TANAP, SCP and Shah Deniz 1 and 2
• Baku-Tbilisi-Ceyhan, Baku-Supsa and Baku-Novorossiysk
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Our approach
ILF and IDP focus their services offering on the front-end stages of the Investment Life Cycle:
Appraise > Select > Define
ILF and IDP have a deep and comprehensive understanding of the challenges facing asset developers in frontier markets.
Against that backdrop, our approach focuses on a developer’s particular needs by:
• Gaining an insight into the core business objectives
• Undertaking a broad risk assessment drawing upon our experience to anticipate challenges to those objectives
• Developing a bespoke de-risking strategy across multiple project components and disciplines
• Implementing a stakeholder and political risk management strategy that is sustainable across the project life-cycle
We emphasize the benefits of effective de-risking at the earliest stages to enable disciplined and informed decision-making through subsequent stages.
Our approach helps developers make better decisions through early project definition and evaluation of project viability and enables capital to be deployed more effectively.
ILF and IDP blend globally recognized engineering and project planning expertise with outstanding strategic, commercial, legal structuring, finance and non-technical risk mitigation capabilities.
ILF and IDP will help you achieve:
• Better informed initial and mid-term investment decisions
• Greater control over the progress of projects through stage gates
• Enhanced project value before FID is reached
• A greater range of project structure and potential exit options
• Accelerated FID with lower capital at risk
Our insight, analysis and the de-risking capabilities required to make this possible are our core strengths.
We specialize in managing the early steps of the investment life-cycle process to enable successful Initial Investment, Mid-term and Final Investment Decisions.
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Investment life cycle
Initial Investment Decision
Mid-term Investment Decision
Final Investment Decision
Appra ise
Se
lect
Op
erati o
n
Decommiss ioning
E xecu te
De f i ne
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Minimizing risk: Maximizing project value
Costs during the Feasibility, Conceptual and FEED stages typically represent less than 10% of overall Capex spend. On the other hand, during these earlier stages, a devel-oper’s influence over project design and implementation is at its peak. Developers should therefore place enhanced focus on de-risking activities during these earlier stages in order to increase value.
ILF and IDP’s experience and specialization at these early stages can help you leverage influence and maximize value.
Illustrative cost vs influence
$1m $10m $100m > $1bn
Influence
Appraise Select Define Execute Operate
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Categories Appraise Select Define Execute Operate
Resource
Market
Political • • •
Commercial • • •
Risk identification
• •
Risk allocation • • •
Legal / regulatory
Technology / design • •
Environmental / social • •
Finance • •
Security •
Project management •
Construction • •
Operation • • •
Pro-forma risk assessment
Quantifying risk: Project benchmarking
The particular risk factors may impact your project will change across every stage of the investment cycle from feasibility to con-struction and into operations. Our insight and experience enable developers to quantify the risk to their projects and to provide a bench-mark against comparable projects globally.
While international rating agencies and institutional investors have focused great attention on quantifying risk and rating pro-jects that are preparing for FID including investment by third party financial investors, few have focused upon quantifying risk and project benchmarking at the earlier stages.
ILF and IDP have developed a comprehen-sive methodology to help developers ana-lyse risk and its potential impacts at these earlier stages. The following table provides an illustration of project risk quantification at a Feasibility Stage. Note that the criteria will evolve as the project progress through sub-sequent stages of the Investment life cycle.
Focused •
Considered
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ILF and IDP offer a blended technical, commercial and legal de-risking and project structuring service, and a financial and transactions advisory capability.
1 Project analysis
Helping clients understand challenges and maximize project development opportunities:
• Market analysis
• Project Definition
• Analyzing project risk and risk allocation
• Developing risk mitigation and management strategies including government and stake-holder engagement strategies
• Designing project structure options
• Advising on the development, implementation and subsequent monitoring of ESIAs, land acquisition and social impact including human rights impacts
2 Technical de-risking & project management
Helping clients with project planning, design and execution throughout the project life cycle:
• Preliminary Design and Conceptual Design
• Project management
• Cost estimates
• Technical due diligence
• Market analysis
• Quantitative risk assessments
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We also leverage our in-house environmental security and human rights capability as well as alliance partners to provide project security and energy market analysis.
3 Commercial and legal de-risking, structuring and strategy advice
Covering all aspects of project risk allocation, commercial structuring, design of tariff methodology and term sheet preparation:
• Concessions, PSAs, PPPs, HGAs, IGAs
• Risk allocation scenarios
• Development of economic and tariff models
• Development and negotiation of key commercial agreements
4 Financial structuring and transaction advisory
Covering all aspects of structuring of project investments and related transactions:
• Project bankability analysis
• Preparation and validation of indicative finance plans
• Project finance implementation
• Identification of equity partners, both strategic and financial investors
• Project investment execution
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East Africa Oil Export Development Projects
In January 2012, South Sudan shut down its oil production of 350,000 bpd in response to Khartoum’s seizure of South Sudanese oil which it claimed was compensation for un-paid transit fees. South Sudan said that pro-duction would not be resumed until the Re-public of the Sudan reduced its demand of $36 per barrel and agreed more reasonable terms. In order to break Khartoum’s monop-oly on South Sudanese oil, Juba announced that it would develop a new pipeline that will not traverse the territory of Sudan. In March 2013, Juba engaged IDP and ILF to provide an independent feasibility study to evaluate alternative export and monetization options for its oil.
The study was conducted over a 10-month period and evolved studies of the existing upstream PSAs and resource base, a route evaluation including a preliminary design and cost estimates, for two route alternatives (the South Sudan–Ethiopia–Djibouti pipeline and the South Sudan–Kenya pipeline), a review of three refinery projects, the drafting and nego-tiation of two sets of intergovernmental IGAs and a petroleum netback value analysis.
The results were presented to the full Council of Ministers and to the President of the Republic on 13 December 2013.
Case Study 1
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Kurdistan Oil Export Development
With 143 billion barrels, Iraq has the fourth largest proven reserves of conventional crude oil in the world. The semi-autonomous region of Iraqi Kurdistan in the north of the country could hold as much as one third of Iraq's reserves.
The Kurdistan Regional Government (KRG), based in Erbil has been unable to agree on power sharing, particularly in respect of rights over natural resources. As a result of these disagreements, KRG has since sought to develop its own independent export routes for oil and gas. ILF and IDP have recently been engaged to provide the technical design as well as a risk analysis, commercial structuring recommendation, finance model, and term sheets to support the retrofitting of a newly built gas pipeline to carry KRG produced oil.
The new export pipeline runs across Kurd-ish territory to an interconnection with the existing Kirkuk Ceyhan pipeline for onward shipment across Turkish territory to the port terminus at Ceyhan. The pipeline began test flows of oil in January 2014 has an initial flow of 150,000 bpd before ramping up to 300,000 bpd in early 2014 and 500,000 bpd in mid 2015.
Case Study 2
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Southern Gas Corridor Projects
Over the last four years, ILF and IDP have been engaged in all components of the Southern Gas Corridor Projects including the SCP Expansion Project, TANAP, Nabucco and TAP.
In this regard, we functioned as the project management consultant for TANAP. We also provided the initial commercial structuring, Intergovernmental Agreement (Azerbaijan and Turkey) and the HGA negotiation between TANAP and Turkey.
On behalf of SOCAR, we were involved in the negotiation of investor entry into Nabucco Gmbh, the Nabucco project eval- uation as well as serving as the finance advisor to SOCAR.
Finally, we undertook the feasibility study for TAP and functioned as the TAP Strategy Advisor and Lead Negotiator for the TAP Intergovernmental Agreement (between Italy, Greece and Albania) and the Host Government Agreements between TAP AG and each of Albania and Greece.
Case Study 3
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ILF Business Consult is a group of inter-national and independent engineering and consulting companies with more than 45 years of experience in various fields of competence. ILF provides comprehensive, full-scope services for major industrial and infrastructure projects.
The successful completion of challenging, complex projects, requiring truly compre-hensive management capabilities and interdisciplinary engineering know-how, is ILF’s specific strength. In 2012 ILF Business Consult (ILFBC) was founded to serve client interests in early project development and ex-pert business improvement consultancy.
Located in Munich, we offer these services globally for project, business and organiza-tional planning in the petroleum and energy industries. ILF Business Consult offers world class consulting expertise based on exten-sive international experience coupled with local market knowledge born from a stable, long-established global presence.
Dr. Andreas LinkeDr. Linke has a strong engineering background and more than 20 years' expe-rience in the oil and gas in-dustries. He holds a Ph.D. in
process engineering and is now the Manag-ing Director of ILF Business Consult GmbH. He has a broad understanding of the oil and gas industries from a technical standpoint, particularly transportation and distribution of petroleum products. Complementary to his technical capabilities, Dr. Linke has a track record of multi-project management from the early planning stages to project execution.
Dr. Wolfram SchaeferDr. Schaefer is a very experienced interdisciplinary consultant with more than 20 years in his profession. He has been in managing
positions with international commercial and engineering consultancies, and has con-tributed to and managed a wide range of international assignments, which include commercial as well as environmental and regulatory studies.
Manuel GeigerMr. Geiger is a Senior Consultant and a seasoned project manager with 7 years of experience in project management, market and
demand analysis, techno-economic studies and financial analysis in energy and transpor-tation projects, financial modeling, due dili-gence, renewable energy including biomass, photovoltaic, wind, concentrated solar power.
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Infrastructure Development Partnership provides project development and transac-tion advisory services to clients developing midstream infrastructure and upstream oil and gas assets.
IDP delivers project development and financing advice to ‘greenfield’ conventional and renewable energy infrastructure develop-ers and investors, and transaction advisory services, including capital raising, in relation to existing energy assets.
Located in London, IDP’s clients include super-majors, state-owned and smaller independent oil and gas companies, project developers, investment funds and governments.
Tom DimitroffTom has over 20 years' expe-rience as a lawyer, risk analyst and strategist. He has advised governments and companies on infrastructure develop-
ments in the Middle East and Africa and has negotiated the acquisition and sale of oil and gas assets around the world for oil and gas majors and PE funds. Prior to IDP, Tom was regional advisor to BP for Africa, the Middle East, Russia, the Caspian and Turkey.
William BrowningBill has 30 years' experience in the oil and gas industry. He was part of the manage-ment team of the Azeri-Chirag- Gunashli field and directed
the legal work for the BTC pipeline and its $2.6 billion financing. Bill has also served in key roles developing the Eastern Caribbean gas pipeline and fertilizer projects in South America, for SOCAR in evaluating the TAP, TANAP and Nabucco pipelines, and advised on export strategies in East Africa.
Alexandre ChavarotAlexandre is a Senior Advisor to IDP, providing project finance structuring expertise to IDP’s clients. He has 20 years experience in energy
and infrastructure finance. He was a senior member of the Lazard project advisory team, where he worked on projects such as the BTC and Nord Stream pipelines. Alexandre spent two years as head of project finance at the Clinton Climate Initiative, before launching a separate strategic and financial advisory firm.
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ILF Business Consult GmbHJoseph-Wild-Str. 1681829 MunichGermany
T +49 (89) 25 55 94-0F +49 (89) 25 55 94-144
UKIDP LLP, 146 Fleet Street London EC4A 2BUT +44 (0)20 7583 8292
AustraliaIDP Consulting Pty Ltd 39 Hobbs Avenue Dalkeith, WA 6009T +61 (0) 450 114100