fpso asset integrity part 2

8/17/2019 FPSO ASSET INTEGRITY PART 2

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15 - 16 October 2015

Crowne Plaza London - Heathrow, London, United Kingdom

th th

FPSO Asset Integrity Managementand Life Extension Forum

Improving cost efficiencies and minimizing shutdown time whist increasing

vessel productivity, value and safety

https://twitter.com/bisgrpcom


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FINANCING FPSO LIFEEXTENSION PROJECTS:

CRITICAL SUCCESS FACTORS FPSO Asset Integrity Management and Life Extension Forum

15-16 October 2015, London


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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 allnecessary 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 orliability (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.

This document is to be treated in the strictest confidence and is not to be disclosed directly or indirectly to any third party. It is not

to be reproduced in whole or in part, nor used for any purpose except as expressly authorised by SG CIB.

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

CONCLUSION


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SOCIETE GENERALE IN BRIEFLeading global bank

30 millionclients worldwide

€2,7 billionGroup net income

148,000employees

€23.6 billionnet banking income

Financial rating A Standard & Poor’s

A FitchAA (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 arebased outside ofmainland France


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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 andSwap Bank

2014 UNITED STATES

Delta House FloatingProduction SystemSenior Secured Credit Facility

USD 400,00,000

Initial Bookrunning MandatedLead Arranger and SwapBank

2014 BRAZIL

USD 1,450,000,000

Financing of the FPSO Cidade deMarica

Mandated Lead Arranger

2014 THAILAND & MALAYSIA

USD 225,000,000

Refinancing of West DesaruMOPU (FPF5) and JasmineVenture FPSO (FPF3)

Financing of the FPSO Cidadede Saquarema

Initial Bookrunning MandatedLead Arranger, Co-Market HedgeCoordinator and Hedge Provider

2015 BRAZIL

USD 1,550,000,000USD 450,000,000

Co-arranger

2015 VARIOUS LOCATIONS

Refinancingof 6 jack-up rigs

USD 1,685,000,000

Lead Arranger and HedgingBank

2015 BRAZIL

Financing of the FPSOCidade de Campos dosGoytacazes MV29

Selected Recent Offshore Transactions


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FPSO LIFE EXTENSION: DEFINITION AND CONCEPTSExisting 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

● In a yard (dry-dock), for most of the redeployments


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FPSO LIFE EXTENSION: REQUIREMENTSCost 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

● Compliance with applicable regulation


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MARKET FOR FPSO LIFE EXTENSIONS: HISTORYOut 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

Source: Teekay Offshore Partners


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MARKET FOR FPSO LIFE EXTENSIONS: OPPORTUNITIESLow 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)

● As a result demand for FPSO life extension might be favoured by the current environment


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FINANCING OF FPSO LIFE EXTENSION WORKOperator-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)

● Historically the FPSO releveraging market is smaller than the “new” conversion financing market


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FINANCING OF CONTRACTOR-OWNED FPSOS: REQUIREMENTSUsual 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)

Compliance certificate (confirming that covenants are in order)


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FINANCING OF CONTRACTOR-OWNED FPSOS: RISK PARAMETERS

Risks Typical events Counterparty /

analysis

Mitigants

Life extension

worktechnical risk

• Delays

• Costs overruns

• Contractor

• Suppliers /Subcontractors

• Shipyard

• Experienced contractor / suppliers / subcontractorsshipyard, with proven track record

• Refund guarantee to underpin shipyard obligations

• Warranties / Liquidated damages

Charter

payment risk

• Charter rate is notpaid

• field operator (ascharterer)

• JV (if projectcharterer)

• Quality of charterer

• Terms of the charter contract

• Field production profile (if applicable)

• Offshore account structure• Priority of charter payments in the project cash waterfall

Operating risk • Vessel does notperform

• Contractor (asvessel operator)

• Reputable operator with requisite experience

• Content of the O&M contract

• Proven ship technology

Force Majeure

risk

• Force Majeureevent

• field operator

• Insurer

• Insurance

• Terms of the charter contract

Political /

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

• Insurance

FPSO banks consider certain risks


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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)

Source: Petrofac


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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 cashflowgenerated by the new charter contract N’Goma FPSO (ex Xicomba)

Source: SBM Offshore


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CONCLUSIONDebt 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 testedFor 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


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Thank you

fpso asset integrity part 2

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