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Strictly private & confidential

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Financing LNG Projects

17th World Petroleum Congress Rio de Janeiro, Brazil

September 2002

Deutsche Securities Inc., a subsidiary of Deutsche Bank AG, conducts investment banking and securities activities in the United States.

Contents
Section 1 2 3 4 5 Introduction Financing Issues Financing Sources Case Studies Conclusion 1 10 15 17 20

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Introduction

Section 1

Section 1
Introduction

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Introduction

Section 1

Oil and gas sector – an integrated approach

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Initial public offerings Secondary offerings g Private placements g Equity linked offerings g Block trades g Share repurchases
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Unique partnership of Deutsche Bank and Wood Mackenzie with whom we have an exclusive consulting relationship

Meeting Client Needs
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Exclusive relationship with Energy Consultancy

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Debt Capital Markets
Corporate and sovereign bonds Eurobonds g FRNs g High yield debt g Syndicated loans g Securitisation
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Risk Management
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Global Banking Products
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Introduction

Section 1

Deutsche Bank’s LNG overview

QATAR QATAR 1995 – Financial 1995 – Financial advisor and lead advisor and lead arranger /under-writer arranger /under-writer for a consortium for a consortium bidding for US$5 bidding for US$5 billion Ras Laffan billion Res Laffan LNG project LNG project 1995 – Deutsche 1995 – Deutsche Bank personnel acted Bank personnel acted as advisor to as advisor to consortium of Mobil, consortium of Mobil, QGPC, Total QGPC, Total Marubeni and Mitsui Marubeni and Mitsui on the US$3.8 billion on the US$3.8 billion QatarGas project QatarGas project TRINIDAD and TOBAGO TRINIDAD and TOBAGO Deutsche Bank Deutsche Bank personnel acted as personnel acted as advisor in respect of the advisor in respect of the Atlantic LNG project Atlantic LNG project VENEZUELA VENEZUELA 1992 – Advisor to Lagoven 1992 – Advisor to Lagoven on the US$2 to $4 billion on the US$2 to $4 billion Cristobal Colon LNG project Cristobal Colon LNG project

OMAN OMAN 1997 – Deutsche Bank 1997 – Deutsche Bank personnel acted as personnel acted as arranger on the US$12 arranger on the US$12 billion Oman LNG Trains 1 billion Oman LNG Trains 1 and 2 financing and 2 financing

MALAYSIA MALAYSIA 1994 – Co-underwriter of 1994 – Co-underwriter of US$390 million MLNG2, US$390 million MLNG2, sponsored by Petronas, sponsored by Petronas, Shell and Mitsubishi Shell and Mitsubishi NIGERIA NIGERIA 1999 – Arranger and underwriter 1999 – Arranger and underwriter in US$160million Bonny Gas in US$160million Bonny Gas Transport financing Transport financing 1994 – Co-arranger of multi1994 – Co-arranger of multisourced finance for Bonny LNG, sourced finance for Bonny LNG, until project’s subsequent equity until project’s subsequent equity financing financing WEST AFRICA WEST AFRICA 2001 – Financial advisor 2001 – Financial advisor to a large integrated to a large integrated energy company in the energy company in the evaluation of a LNG evaluation of a LNG production facility production facility INDONESIA INDONESIA 1991 – 1991 – Underwriter, coUnderwriter, coarranger of the arranger of the US$750 million US$750 million F-train F-train ZOCA ZOCA 1997 – Deutsche Bank 1997 – Deutsche Bank personnel advised the personnel advised the Bayu-Undan Consortium Bayu-Undan Consortium on the financial feasibility on the financial feasibility of LNG projects worth of LNG projects worth US$2 to 2.5 billion US$2 to 2.5 billion

AUSTRALIA AUSTRALIA 2000 – Advisor to North West Shelf LNG on financing options and 2000 – Advisor to North West Shelf LNG on financing options and corporate structure corporate structure 1997 – 1991 – Advisor to the Woodside LNG Consortium on the 1997 – 1991 – Advisor to the Woodside LNG Consortium on the first offshore oil and gas financing in which commercial banks took first offshore oil and gas financing in which commercial banks took completion risk. In 1985, co-lead managed the refinancing. completion risk. In 1985, co-lead managed the refinancing.

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Introduction

Section 1

Recent representative oil & gas Project and Structured Finance transactions
Fujian Integrated Petrochemicals Project US$3,500 million
Project Finance Advisor to ExxonMobilSaudi, Aramco and Fujian Petrochemical

PetroChina
d e P ER E Z C O MP ANC S .A.

Barracuda/Cartinga
US$42,500,000 Senior Secured Notes due 2015 Private Placement to monetize sponsor’s equity investment in cogeneration facility in Talcahuano, Chile US$220,000,000 Senior Unsecured Floating Rate Notes (FRN) Contingent Oil Payable Floating Rate Notes Facility for use by PeCom Energia, S.A. of Argentina to meet general corporate needs Structurer, Lead Manager and Sole Hedge Provider August 2001 July 2001

US$15 billion

US$3.3 billion
To advise and provide financing for the development of the Barracuda/Caratinga oil field by Petrobras

Financial Adviser on West-East pipeline Project On-going China On-going China

Financial Advisor and Lead Arranger 2000 Brazil

Engineering & Construction Co., Ltd.

Engineering & Construction Co., Ltd.

Madero Project US$1.6 billion
Senior Bank, Bond and ECA Facilities Advised a consortium led by SK Engineering & Construction Co., Ltd., Siemens AG and Grupo Tribasa on the financing for the upgrade and expansion of the Madero Refinery in Madero, Mexico Financial Advisor, Lead Arranger, and Sole Lead Manager 1999/2000 Mexico

Port Arthur Heavy Oil Upgrade Project US$715 million
Senior Bank and Bond Facilities Arranger and Co-manager of the financing to upgrade and expand the Clark Port Arthur Refinery in Port Arthur, Texas Arranger and Co-manager August 1999 United States

Cadereyta Project Conproca S.A. de C.V. US$1.5 billion
Senior bank, bond and ECA facilities Project financing a company formed by SK Engineering, Grupo Tribasa and Siemens to upgrade and expand the Ing. Hécor R. Lara sosa Refinery in Cadereytade Jiminez for Pemex Financial Advisor and sole Lead Arranger June 1998 Mexico

Cantarell US$250 million
Term Loan Facility For US$1.0 billion upgrade of nitrogen production plant for sponsors BOC Group, Marubeni, and Westcoast Energy Financial Advisor and Co-Lead Arranger August 1999 Mexico

Merey Sweeny, L.P. Sweeny Fundings Corp. US$430 million
Senior Bank and Bond Facilities For US$537.5 million upgrade of Phillips Sweeny Refinery

Joint Lead Manager and Co-Bookrunner of Notes, Sole Lead Arranger of the Senior Bank Facility June 1999 Texas

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Introduction

Section 1

Introduction

LNG is one of the fastest growing sectors of the energy business and the outlook for growth remains strong Continued growth in the sector will lead to increasing amount of financing opportunities, both in number and across the credit spectrum The credit quality of a project depends on all the independent components of the LNG value chain

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Introduction

Section 1

US$343 billion infrastructure opportunity dominated by gas pipelines

LNG (14%) 12% Piped gas (14%) 36% Deep water (25%) 9% Heavy oil (15%) 3%

Caspian oil (20%) 8%

OPEC oil (18) 32%

% = size of market demand (%) = weighted average ROE

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Introduction

Section 1

Where is LNG? Global supply: two regional basins

Snøhvit

Egypt USA Alaska Kenai Algeria Arzew,Skikda Libya Marsa-el-Brega Yemen Nigeria Bonny Angola Iran Venezuela Trinidad Atlantic Abu Dhabi Das Island Oman Arun Indonesia Australia Gorgon Australia – North West Shelf
160 140 120 100 Mt 80 60 40 20 0 Atlantic Basin Demand Pacific Basin Demand

Russia Sakhalin

Brunei – Lumut Malaysia – Bintulu Indonesia Bontang Indonesia Tangguh Australia Darwin

Qatar North Field

Existing LNG Plants/Expansions Probable Greenfield Projects Possible Greenfield Projects

17% AAGR 2000 – 2005

6% AAGR 2000 – 2005

1990 1995 2000 2005 2010 2015

Source: DB estimates, Company Data, Wood Mackenzie

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Introduction

Section 1

Potential “long distance” supply projects into US

Alaska Highway route… the Alaska Highway route… the original gas proposal original gas proposal

Japan Japan

Canada’s M ackenzie Delta route… opposed by Canada’s M ackenzie Delta route… opposed by Alaska politicians… but soaks up m ore gas Alaska politicians… but soaks up m ore gas

LNG into the W est Cost is economically LNG into the W est Cost is economically compelling... but twenty years of pursuit compelling... but twenty years of pursuit have yielded only failure. have yielded only failure.

Russia Russia

Australia Australia

Key Mid-W est Key Mid-W est m arkets m arkets

Bolivia/Peru/Argentina Bolivia/Peru/Argentina

Algeria/Trinidad/Nigeria/Qatar/Malaysia/Australia Algeria/Trinidad/Nigeria/Qatar/Malaysia/Australia

Trinidad expansion, Nigerian Trinidad expansion, Nigerian expansion, Nigeria II, Egypt expansion, Nigeria II, Egypt

Source: DOE/IEA; Deutsche Bank comments
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Introduction

Section 1

West coast LNG routes
. . . longer hauls = higher costs
Arctic Ocean

RUSSIA
Sakhalin II
CHINA

Alaska
Bering Sea
3,7 Ken 00 aikm Cal / 2 ifor ,30 nia 0m ile

CANADA

Kenai LNG
planned Sakhalin 1 to California 7,300 km / 4,560 mile

JAPAN

U.S.A.
Atlantic Ocean Hawaii

PHILIPPINES

al in rm te Te u G ro LN ent e is m ile nr hip m Su G s ,300 r te N / 8 ea a L m Gr rni 50k d fo ne ali 3, 2 an C 1 pl to

MEXICO
a ni or lif ile Ca 0 m G- 15 LN /5, ia m liv 0 k Bo ,25 8

INDONESIA P.N.G. FIJI

A SI NE RO IC M

Pacific Ocean

COLOMBIA BRAZIL

RU PE

PO LY NE SI A

Greater Sunrise AUSTRALIA
Tasman Sea

Bolivia LNG BOLIVIA
AR GE NTI NA

NEW ZEALAND

0

1000 Km

2000

Source: Deutsche Bank
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CHIL

E

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Financing Issues

Section 2

Section 2
Financing Issues

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Financing Issues

Section 2

Key LNG financing criteria

Strong credit

Weaker credit

Nature of Contracts
Firm, long term Tolling & usage Large, diverse, high credit quality Interruptible, short term Separate supply/offtake contracts Small, concentrated, low credit quality

Supply-demand dynamics / commodity risk
Access to abundant gas reserves Low/stable transportation costs Positive projections for gas/LNG demand Gas demand not met by local/delivered production Reserve adequacy risk High cost/unstable cost of transportation Market exposed to declining demand Gas demand met by local/delivered production

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Financing Issues

Section 2

Key LNG financing criteria (continued)

Strong credit

Weaker credit

Competitive Position/Project economics
Low delivered cost First mover advantage Proximate location to end users Debt service coverage resilient High delivered cost Overcapacity of gas/LNG Long distance to end users Debt service coverage highly sensitive

Operations/Technology
Good track record Proven technology Low operational complexity Existing complementary infrastructure Operator has little experience Unproven/poor historical performance High operational complexity Lack of existing infrastructure

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Financing Issues

Section 2

Key LNG financing criteria (continued)

Strong credit

Weaker credit

Project Structure
Strong, lender friendly covenants Strong collateral Weak covenants Limited security package

Sponsorship
Represents strategic investment Strong commitment Not integral to sponsors’ business Little vested interest

Construction
Completion guarantees/overrun support Low complexity Positive IE assessment Experienced contractor EPC w/o fixed price, no completion support Complex construction required IE assessment limited Contractor with little prior LNG experience

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Financing Issues

Section 2

Key LNG financing criteria (continued)

Strong credit

Weaker credit

Regulatory/security/environment
Established, supportive regulator/legal environment Project meets all current/future environmental regulations Facilities in secure area Uncertain regulator/legal environment Project in environmentally sensitive area Facilities in urban or crowded shipping area

Sovereign Risk
Stable political regime and/or PRI Hard currency earnings/offshore account Unstable regime/government opposition Non-hard currency earnings/onshore account

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Financing Sources

Section 3

Section 3
Financing Sources

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Financing Sources

Section 3

Funding alternatives

Funding for Project financings may be obtained via agencies, banks and capital markets; or a combination of these sources

There are many potential sources of funding for projects. The optimal combination will depend on the state of the financial markets and the nature and requirements of the specific project.

Bank Bank market market

Syndicated Syndicated bank market bank market Eurobond Eurobond

Public Public
SEC registered SEC registered

Global Global capital markets capital markets Private Private placements placements

144A //Reg S 144A Reg S Traditional Traditional private placement private placement Local Local securities securities Multinationals Multinationals

Agencies Agencies
Export Export credit agencies credit agencies Sponsors Sponsors

Equity Equity
Private equity Private equity

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Case Studies

Section 4

Section 4
Case Studies

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Case Studies

Section 4

Comparable LNG projects

Oman LNG
Project Sponsors 6.6 mm mtpy 2-train liquefaction plant Sultanate of Oman (51%); Shell (30%); TotalFinaElf (6%); Korea LNG (5%); Partex (2%); Mitsubishi (3%); Mitsui & Co. (3%); and Itochu (1%) Oman A-/A3 Bank November 2001 US$1.3 bn 2018/7.7 Yrs 1-6: L+90 Yrs 7-10: L+ 110 Yrs 11+: L+140 3.57x/2.27x

Ras Laffan LNG
2.6 mm mtpy, single-train liquefaction plant Qatar Petroleum (70%); Mobil Corp. (30%)

Location Ratings (at issuance; S&P/Moody’s) Issuance type Issuance date Amount Maturity (year)/ Average life (years) Pricing; in bps (at issuance) Pro-forma coverage ratios at issuance (average/minimum) Total debt/equity (at issuance)

Qatar BBB+/A3 Bond December 1996 US$800 mm US$400 mm 2006/7.75 2013/15 UST+126 UST+171 2.63x/1.88x

79:21

70:30

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Case Studies

Section 4

Comparable LNG projects

Atlantic LNG 1
Project Sponsors Location Ratings (at issuance; S&P/Moody’s) Issuance type Issuance date Amount Maturity (year)/ Average life (years) Pricing; in bps (at issuance) 400,000 mmBtu/d single-train liquefaction plant Amoco (34%); Repsol (20%); BG (26%); Natural Gas Co of Trinidad and Tobago (10%); Cabot LNG (10%) Trinidad and Tobago N/A Bank/Agency PRI July 1997 1: US$120 mm1 2: US$140 mm2 3: US$340 mm3 2012/8 2012/8 2012/8 1: Yrs 1-3: L+262.5; Yrs 4-8: L+312.5; Yrs 9+ L+375 2: Yrs 1-3: L+80; Yrs 4-8: L+162.5; Yrs 9+: 187.5 3: Yrs 1-3: L+80; Yrs 4-8: L+162.5; Yrs 9+: 212.5 1.89x/1.38x

Sines LNG
2.35 bcmpy regasification facility; 200,000 m3 storage capacity Transgas SGPS (51%); Gas de Portugal SGPS (49%) Portugal N/A Bank/EIB PRI June 2001 1: Euro 65 mm 2: Euro 122 mm4 2024

1: L+ 80 during construction, declining over time to L+ 50 2: pricing almost identical to, but slightly inside 1.

Pro-forma coverage ratios at issuance (average/minimum) Total debt/equity (at issuance)

1.38x/1.29x

60:40

85:15
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Conclusion

Section 5

Section 5
Conclusion

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Conclusion

Section 5

Financing an integrated LNG project

The value chain combines a number of interdependent components that need to be analyzed both individually and jointly Project developments is characterized by high capital costs, the need for committed offtake and creditworthy partners

Upstream Upstream Gas reserves Gas reserves Terms of supply Terms of supply contract contract

LNG trains LNG trains Train construction/ Train construction/ operation operation Cost of gas Cost of gas Quality of offtake Quality of offtake Storage Storage

Shipping Shipping Tanker availability/ Tanker availability/ dedication dedication

Regas Regas Terminal Terminal construction/ construction/ operation operation

Offtake Offtake Power stations or Power stations or Distribution network Distribution network Economic Economic sustainability of sustainability of demand demand Gas price Gas price indexation indexation

The weakest credit in the LNG chain will determine the project’s overall credit quality Need for cross completion across the chain

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Conclusion

Section 5

Feasibility of Non-Integrated Projects

New templates required for the future Specific Sponsors for specific parts of Value Chain - e.g. fuel suppliers, plant operators, shippers, regas, offtake Wide range of credit ratings – not equalized or unitized Will require new risk-sharing and new legal framework Can we do a Project Finance based on a Project Finance for a mega project?

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Conclusion

Section 5

Capital Supply Reducing?

I.

Industry consolidation – fewer players Fewer super majors NOC’s constrained by government debts / IMF Independent’s consolidating

Results: All sectors are rationalising capital & allocating to projects that yield highest return on risk adjusted basis (including country risks) II. Banks consoIidating looking for higher return on capital reducing loan book – size and maturities reducing emerging market exposures

Results: Consolidations & rationalization is reducing banks’ commitment to hold long term assets, especially in Emerging Market countries

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Conclusion

Section 5

Capital Supply Reducing (continued)

III.

Capital Markets Increasing supply from US & European institutions for developed country projects available for long tenors – 15 – 25 years usually requires investment grade rating difficult for assets generating local currency revenues blows hot and cold on emerging market risks, regulatory risk, market and commodity price risks

Results: Attractive & growing option, but not always available IV. ECA’s & MLA’s ready, willing and able (but) restricted markets & projects (private vs. public) limited funds (caps per project) limited staff resource constrained-not opportunity constrained long lead times

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