10 th African Oil & Gas Trade & Finance Conference & Exhibition 2 & 5 April 2006, Hotel El Aurassi, Alg

1. NOT AN OFFICIAL UNCTAD RECORD 10th African Oil & Gas Trade & Finance Conference & Exhibition 2 & 5 April 2006, Hotel El Aurassi, Algiers FINANCING LNG PROJECTS 3rd April 2006 Stuart McAlpine, PartnerOrrick, Herrington & Sutcliffe

2. Contracting for and financing LNG assets April 2006

3. The “LNG chain” • Gas extraction • Transmission • Liquefaction • Storage • Transport • Re-gasification • Distribution 3

4. Who are the investors? • Gas Suppliers • LNG purchasers • Governments • Trading houses • Ship owners • Terminal owners/operators 4

5. LNG Purchasers Investment might cover: • Interest in production sharing arrangements • Liquefaction/re-gasification plant assets • Operation of liquefaction/re-gasification plant assets • Interest in LNG tonnage 5

6. Other Investors Government entities • Export phase participation • Financial strength Trading Companies • Play a major role in Asian trades • Facilitate sale by identifying markets and negotiating contracts • Often own a small piece of a project Local entities • Depend on local political leverage • Might seek a share ownership of LNG carrier, participation in production sharing contract or license • Major supplier or contractor 6

7. Financing issues • Commercial banks • Export Credit Agencies • Capital markets • Private equity • Inter-creditor issues 7

8. Financing issues (continued) Type of financing driven by: • Experience and creditworthiness of sponsors • Type and location of terminal facilities • Condition of capital markets Project company structure • Works for both debt and equity investors • Separation of assets/liabilities from those of sponsors’ • Is flexible, allowing for different levels of participation and risk exposure 8

9. Financing issues (continued) • Parent guarantees and security • Restrictions on use of facilities – negative covenants/negative pledge provisions • Take or pay provisions • Need to disclose proprietary information in connection with financing • Potential liability to creditors for misrepresentation in connection with such disclosure • Timing – dovetailing readiness of project documentation 9

10. Documentation Key Documents: • Gas Supply Contract • LNG Sales Contract • EPC Contracts • Shipping documentation • Shareholder Agreements • Technical Services Agreements • LNG Project Agreement • Letters of Intent, Heads of Agreement, MOUs 10

11. Gas Supply Contracts • Quantities • Transportation • Price • Scheduling • Delay Provisions • Force Majeure • Termination 11

12. LNG Sales Contracts Same list as for Gas Supply, but also: • Transportation – ex-ship or FOB? • Short/long term • Excess quantities 12

13. Force Majeure – some pointers • A superior force • An event which can neither be anticipated nor controlled • Consequences could not have been avoided through the exercise of due care • Allocation of force majeure risk as between seller and buyer • Incidence of force majeure will suspend affected party’s performance obligations 13

14. Force Majeure – principal discussion points • Address risk and harmonize in project documents • Will the clause cover LNG buyer’s customers? • Does LNG buyer have to continue to pay seller’s transportation costs during a force majeure event preventing buyer from taking LNG? • Can force majeure be affected by negligence? • Unexpected depletion in recoverable reserves: force majeure event or breach of seller’s reserves warranty • Termination right if force majeure is lengthy • Will delay in construction of the facilities or the vessel(s) constitute force majeure? 14

15. Force Majeure – principal discussion points (continued) • Allocation of remaining LNG supplies between buyer under sales contract and other purchasers of LNG from LNG plant • Allocation of LNG purchases between seller under sales contract and other exporters of LNG to buyer’s receiving facility • Future obligations of parties to sell or purchase quantities of LNG that could not be timely delivered/received due to force majeure • Payments made during disputed force majeure period to be held in escrow pending determination of validity of a force majeure claim • Vessels to be covered by force majeure clauses where there is loss or damage while carrying LNG in separate trade 15

16. LNG shipping issues • Important issues – integral to the success of the entire project • Ex-ship versus FoB • Sales contract obligations to converge with availability of transportation • Availability and cost of LNG carriers in world market not dedicated to a specific LNG trade • Potential to utilise short term excess shipping capacity 16

17. LNG shipping issues – ex-ship • Method of calculation of LNG transportation fee • Cost allocation in case of carrier or terminal upgrading needs • Demurrage/excess boil-off costs if seller’s LNG carrier is not timely berthed and unloaded • Seller’s liabilities in contract where there would be no liability in tort (under local law) 17

18. LNG shipping issues – FoB issues • Liability regime governing buyer’s use of loading facilities • Financial guarantees from buyer or vessel owners • Allocation of cost for upgrading of tanker or loading/receiving terminal to ensure compatibility • Seller to pay demurrage/excess boil-off if it does not timely berth and load buyer’s LNG tanker 18

19. Current trends • Movement from fixed price, long term supply contract to market based, flexible framework • Delivery schedules – greater flexibility • LNG spot market • The above current trends create a stronger negotiating position for LNG importers • More uncertainty in developing additional LNG infrastructure • Impact on ability to project finance an LNG project 19

20. 10th African Oil & Gas Trade & Finance Conference & Exhibition 2 & 5 April 2006, Hotel El Aurassi, Algiers FINANCING LNG PROJECTS 3rd April 2006 Stuart McAlpine, PartnerOrrick, Herrington & Sutcliffe