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FPSO Asset Integrity Management

and Life Extension Forum


Improving cost efficiencies and minimizing shutdown time whist increasing
vessel productivity, value and safety

15 th - 16th October 2015


Crowne Plaza London - Heathrow, London, United Kingdom

FINANCING FPSO LIFE


EXTENSION PROJECTS:
CRITICAL SUCCESS FACTORS
FPSO Asset Integrity Management and Life Extension Forum
15-16 October 2015, London

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 all
necessary 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 or
liability (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 partys
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 Autorit
de Contrle 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.

CONTENTS
SOCIETE GENERALE IN BRIEF
FPSO LIFE EXTENSION: CONCEPTS
DEFINITION

REQUIREMENTS

MARKET FOR FPSO LIFE EXTENSIONS


HISTORY

OPPORTUNITIES

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
3

SOCIETE GENERALE IN BRIEF


Leading global bank

A STRONG UNIVERSAL BANK,


SERVING OUR CUSTOMER AND THE ECONOMY,
BUILT ON 3 COMPLEMENTARY PILLARS
French Retail Banking
International Retail Banking & Financial Services
Global Banking and Investor Solutions

30 million

148,000

76 countries

clients worldwide

employees

Over 60% of staff are


based outside of
mainland France

2,7 billion

23.6 billion

Financial rating

Group net income

net banking income

A Standard & Poors


A Fitch
AA (low) DBRS
A2 Moodys

SG SHIPPING & OFFSHORE FINANCE


Franchise with professionals in Paris, London, Hong Kong and Sao Paulo
Our Business
SGs Shipping/Offshore Group selectively focuses on three asset segments: Offshore, LNG shipping and industrial shipping

LNG shipping

Offshore drilling

Dry bulk

Containers

FPSOs

Tankers

Car Carriers

Others

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

Selected Recent Offshore Transactions

Refinancing of West Desaru


MOPU (FPF5) and Jasmine
Venture FPSO (FPF3)

Financing of the FPSO Cidade de Delta House Floating


Marica
Production System
Senior Secured Credit Facility

Financing of the FPSO


Cidade de Campos dos
Goytacazes MV29

Refinancing
of 6 jack-up rigs

Financing of the FPSO Cidade


de Saquarema

USD 1,685,000,000

USD 450,000,000

USD 1,550,000,000

USD 225,000,000

USD 1,450,000,000

USD 400,00,000

Lead Arranger and Hedging


Bank

Co-arranger

Initial Bookrunning Mandated


Lead Arranger, Co-Market Hedge
Coordinator and Hedge Provider

Mandated Lead Arranger

Initial Bookrunning Mandated


Lead Arranger and Swap
Bank

Joint Lead Arranger and


Swap Bank

2015

2015

2015

2014

2014

2014

BRAZIL

VARIOUS LOCATIONS

BRAZIL

THAILAND & MALAYSIA

BRAZIL

UNITED STATES

FPSO LIFE EXTENSION: DEFINITION AND CONCEPTS


Existing location versus redeployment

What is a FPSO life extension?


Extension of the vessels 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

FPSO LIFE EXTENSION: REQUIREMENTS


Cost 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 vessels condition,
maintenance requirements, incidents, etc)
Classification of the vessel with relevant class societies

Regulation abiding
Compliance with applicable regulation

MARKET FOR FPSO LIFE EXTENSIONS: HISTORY


Out 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

Espoir Ivoirien FPSO


Source: BW Offshore

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

Petrojarl I FPSO
Source: Teekay Offshore Partners

MARKET FOR FPSO LIFE EXTENSIONS: OPPORTUNITIES


Low 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

FINANCING OF FPSO LIFE EXTENSION WORK


Operator-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

10

FINANCING OF CONTRACTOR-OWNED FPSOS: REQUIREMENTS


Usual 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 borrowers 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)

11

FINANCING OF CONTRACTOR-OWNED FPSOS: RISK PARAMETERS


FPSO banks consider certain risks
Risks

Typical events

Counterparty /
analysis

Mitigants

Life extension
work
technical risk

Delays
Costs overruns

Contractor
Suppliers /

Experienced contractor / suppliers / subcontractors

Charter
payment risk

Subcontractors

Charter rate is not

Shipyard
field operator (as

paid

charterer)

JV (if project
charterer)

Operating risk

Force Majeure
risk
Political /
Country risk

Vessel does not

Contractor (as

perform

vessel operator)

Force Majeure

field operator
Insurer
field operator
Insurer

event

Confiscation,
expropriation,
nationalisation, or
deprivation of the
vessel

shipyard, with proven track record

Refund guarantee to underpin shipyard obligations


Warranties / Liquidated damages
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
Reputable operator with requisite experience
Content of the O&M contract
Proven ship technology
Insurance
Terms of the charter contract
Offshore borrower / account structure
Offshore flagging lender friendly jurisdiction
Payments security mechanism
Insurance
12

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 (FPF3, ex Buffalo Venture)


Source: Petrofac

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

West Desaru MOPU (FPF5, ex Ocean Legend)


Source: Petrofac

13

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 NGoma 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 cashflow
generated by the new charter contract

NGoma FPSO (ex Xicomba)


Source: SBM Offshore

14

CONCLUSION
Debt 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 tested


For 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

15

Thank you

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