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The Ras Laffan Project

The Ras Laffan Project. A Global Energy Strategy. Finance 570 – Spring ‘09 Dr. Joe Greco California State University, Fullerton Present by: Mark Skrenes Chris McMartin Eduardo Gutierrez Trung Nguyen Chun Lin. About Us.

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The Ras Laffan Project

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  1. The RasLaffan Project A Global Energy Strategy Finance 570 – Spring ‘09 Dr. Joe Greco California State University, Fullerton Present by: Mark Skrenes Chris McMartin Eduardo Gutierrez Trung Nguyen Chun Lin

  2. About Us We are the financial analysts at Broadway Value and Growth Fund Our objective is to find investments with an attractive risk vs. reward profile

  3. Project Background A liquefied natural gas (LNG) joint venture Exclusive rights to the world’s largest undeveloped natural gas reserve 6,000 square kilometers 9% of the world’s proven reserve A 30-year, $3.75 billion budgeted project Already have committed buyer (Kogas)

  4. LNG A clean alternative energy source Made by freezing natural gas to -2600F, reducing it to a liquid 1/600th of its original volume. Stored under pressure and can be transported safely worldwide via tanker LNG facilities are cost intensive

  5. LNG

  6. The LNG Industry Most LNG is sold to utility companies Utility companies need a stable LNG supply to support electrical generation and/or natural gas delivery LNG demand growth rate: Worldwide: about 3% a year since 1980 Japan: about 6% a year since 1980 Korea: over 20% a year since 1987

  7. The LNG Industry There is no spot market for LNG Pricing is determined using the market prices for competing commodities (e.g. oil) Comparable LNG prices for delivery to Japan & Korea

  8. Project Status Construction is underway Contracts were awarded to top-notch contractors at low cost Issuing bonds to finance the project $400 mil. mature in 2006 at 7.6% $800 mil. mature in 2014 at 8.3%

  9. Project’s Structure

  10. Equity Investors (30%) State of Qatar Mobil Corporation (fully-owned) (fully-owned) Qatar General Petroleum Mobil QM Gas $704M $302M (66.5% ownership) (26.5% ownership) Ras Laffan LNG Co.

  11. Creditors (70%) U.K. ECA France ECA Italy ECA U.S. ECA Japan ECA $764M Commercial Banks $383M Bonds Due 2006 $400M Bonds Due 2014 $800M

  12. Major Customer Republic of Korea Korean Municipalities (50% ownership) (51% ownership) (15% ownership) Korea Electric Power Corp. Korea Gas Corporation (35% ownership)

  13. Product Flow North Field Gas Reserves (Qatar) RasLaffanFacilities QatarGas LNG Tanker Terminal (note - QatarGas ownership: Qatar 88%, Mobil 12%) KoGasLNG Tanker Fleet KoGas LNG Tanker Terminal (Korea) Korea Electric Power Corp. Korean Homes and Businesses

  14. Cash Flows (“take or pay” guaranteed) Export Agency Credit Facilities (5) Commercial Banks Mobil Corp (Debt Facility) RasLaffan Trust (New York) Bond Trustee RasLaffan LNG Co. Bond Holders

  15. Delivery Timeline

  16. Decision Criterias & Risks

  17. Major Alternatives

  18. Our Decision Criteria Proven Commodity Vested Project Sponsors Strong Demand Well-structured Project Well-mitigated Risks Risk Premium

  19. Basic Issues Low High Importance Urgency Low High

  20. Immediate Issues Low High Importance Urgency Low High

  21. Default Risk Production Capacity Regional Instability Default Risk No Perfected Interest Breach of Contract

  22. Risks Mitigation

  23. Basic Risks Mitigation Force Majeure Qatar dependent on U.S. military support Transportation – no tanker ever lost at sea, proven transportation methods

  24. Basic Risks Mitigation Qatari Legal System Off-shore New York Trust account held by Credit Suisse

  25. Basic Risks Mitigation Infrastructure Currently on schedule Experienced, Leading international construction team Mobil human capital Proven technology 5 year natural gas production history

  26. Basic Risks Mitigation Default Risk KoGas owned 50% by Republic of Korea, 34.7% by Kepco Need to insure reliable and continuous supply as its needed for power generation Korea greatly expanding LNG consumption Vested interest by project sponsors, ECAs Both customer and supplier have invested Billions Intercreditor Protection Agreements

  27. Immediate Risks Mitigation Foreign Exchange Risk If Korean Won depreciates against the U.S. Dollar, utility prices can be raised to cover U.S. dollar payments

  28. Immediate Risks Mitigation Joint Venture Risk Mobil strategic objective is to increase its LNG market share Qatar is seeking to diversify its economy Huge capital investments by all parties in Billions of U.S. Dollars

  29. Immediate Risks Mitigation Oil Prices Minimum quantity SPA Mobil $200 million loan fund

  30. Immediate Risks Mitigation Cash Flow Project is strategically important to all parties Take or Pay SPA (SPA becomes a bankable asset) Long-term contract of up to 25 years Debt Service Coverage ratio is strong even if oil prices fall Mobil Experience Increased quantities purchased by Kogas result in economies of scale

  31. Projection - Reduced Market Price

  32. Conclusion

  33. Our Decision Criteria Proven Commodity Vested Project Sponsors Strong Demand Well-structured Project Well-mitigated Risks Risk Premium

  34. Conclusion Object of the project: North Field Sponsors of the Project Kogas Long term supply & Purchase Agreement Demand for LNG

  35. Conclusion Security Trust Intercreditor Protection Agreements Contractor for the project

  36. Conclusion Inherent Risks Geopolitical location of Qatar Qatari Legal System Breach of contract by Kogas Expose to currency risks Contractual Incompleteness

  37. Bonds Comparison Source: Treasury Department

  38. Bonds Comparison Source: Treasury Department

  39. Questions?

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