Raising capital for FSRU projects:- If your dreams don’t scare you, It’s not big enough;
Take LNG Business as an Industry, don’t
horrify it; Unnecessary chaos creation for raising capital for FSRU projects is
really a man made gimmick; Just get in for the project, you will get a safe
escape with minimum in millions of dollars per year as profit; I am not saying
the total CAPEX, you will get in one financial year but it is safe not a
negative one; I have studied and tried to understand many small projects and
thought about that how CAPEX can be generated; Some factors again the same will
be Demand and Need of the project in that area as well Gas Supply in the
region; FSRUs provide a quick and flexible solution to gas supply needs. A
typical project takes 12 months from final investment decision (FID) to
operation, according to my experience and knowledge, far quicker than a
land-based alternative. And, thus, Company could have a real chance of first
revenues from a project in early Q4 results, but should a deal be announced in
Q4. You can have old ships for this purpous to cut down the CAPEX; As we all
know, FSRUs are generally older LNG supply ships that is converted to add a
regasification unit, although new builds are an increasing part of the picture
now-a-days. Companies such as Golar, Excelerate and Höegh can all supply FSRUs for
lease.
As
we all know, FSRUs are moored in deepwater port or in deep river’s too during
their contract term and connected to a country’s infrastructure to supply
regasified natural gas into the network. LNG is supplied periodically to the
FSRU by LNG supply ships with LNG
deliveries, occurring as often as necessary. The offloading capacity of FSRUs
can vary significantly – like as I know Excelerate Energy’s ships range from
50-800mmscf/d for example but they are capable for higher too. I have good experience talking to Excelerate,
Xmar, Samsung and Russian Contractors in this regard; And, it has boosted my
morale that it will work, and not a negative holding business;
Developing an attractive business proposal: Key risk, commercial and
technical considerations :- First
thing is valuation creation with restricted capital outlay for the project;
FSRU project has low capex requirements in comparison land made alternatives as
I quoted earlier; (FSRUs) would be leased, while initial capital requirements
would be determined by proximity to gas infrastructure and harbor requirements,
but could be as low as per my consideration we tentatively estimate $10-15m. At
the same time by entering long-term contracts with large or government-backed
gas companies (with additional credit enhancement if necessary), Company will
be able to reduce risk and attract financing that could cover the majority of
initial capital requirements, leaving only perhaps 20% of cash needed from
equity. For that Company’s -has to create sustainable, long-term shareholder
value, it is important to explicitly establish an appropriate shareholder value
target. The key to reaching this target—and achieving a competitive
advantage—is the alignment of business, financial, and investor strategies.
Therefore, companies must ask the following important questions- What is my
shareholders’ investment thesis? Are my strategies aligned to target the right
investors—those that will support my medium- to long-term business and
financial strategy? Will my plans create enough shareholder value to reach my
targets? If not, which moves should I consider to close the gap? After all,
what the share holders need, they need profit against their investments made
trusting your project;
For
all the above one solution, sign the deal, with suppliers and then buyers for
gas supply; Common difference between buyer and suppliers gap is your profit
with tax; Show it and exploit it in black and white in papers; This will raise
investors confidence that you have the buyer and the suppliers; However, at the
current situation in Asia categorically, it is clear that overall market
pricing and demand are not a barrier to these kind of projects and that the a
company could create significant value by supplying LNG to gas-starved markets.
After analyzing and listening all these you can have the first blush for the
indicates that an NPV@15% of over $15m is possible, with first revenues
possible in in first year only if a deal is announced soon at the startup. I
always look forward to the company announcing a first deal with project
announcements, but until this is done we do not ascribe any value to the
project. As a result, we believe it would be useful to flesh out a theoretical
model on what a potential FSRU project would look like. How much value could
investors expect from Company making FSRU to create, and for what outlay? For
this margins to be made in LNG marketting in gas-starved markets thee company
must target number of markets which would benefit from the supply of gas via
regasification of LNG (re-gas); In developing Countries where theses all
countries experiencing significant growth in GDP and where gas demand is
significant. Company will be able to generate value when the gas can be
supplied at a lower price than the existing
energy supply – in this case liquid fuels such as diesel to be
considered. The margin between LNG and diesel prices is wide. Under this
scenario, gas is more cheaper and cleaner for the industrial and power
customers and has other advantages such as lower maintenance costs; as long as
the infrastructure is in place customers will demand the gas. In my opinion
Just Build it, and they will come.
Long
term pricing and margin achievements to be understood first by developer so
that they can explain the financers, shareholders and institutional investors;
They may compare with other fuels like diesel with lng in the crash market; An
initial look at the diesel equivalent pricing indicates that the company has
headroom for strong negotiation with customers if the only alternative fuel is
diesel and prices remain where they are currently – there is more than a $6/mcf
delta between diesel equivalent prices and Asia LNG prices (closest listed LNG
pricing). However, projects are not sanctioned on current selling prices and
will likely be negotiated based on a conservative view of future prices and the
returns that projects would achieve.
Keeping in mind, the gas equivalent price for diesel has fallen below $10/mcf within the last four years, although the lowest
price seen in the last 18 months was $17/mcf. We believe a deal would be signed
at a notable discount to this figure – the competitive pressures would mean
that margins will be lower. To determine a possible marketing margin that
Company could achieve, but we ultimately have to refer to project NPV
sensitivities to examine where others may be bidding.
After
analysis it indicates that a FSRU project has the potential to create
significant value for Company. The emphasis on opex vs capex means Company can
create significant value with a low initial contribution. Even a small initial
capex bill of $10-15m is good to go ahead. However, we believe most of the
funds can be obtained through debt financing. The clarity of future revenues,
can be derived from long-term contracts with government agencies or large gas
companies provide surety that will enable banks to provide finance. We believe
the financing will be provided by development banks, leaving the equity funding
requirements to be as low as perhaps 10-20% of total capital demands. But, I
have received the wonderful offer, just after sanction give it to us, we will
finance, build and operate with profit sharing for a tenure in decreasing order
year wise for 12 years;
Understanding financing options in India: Private equity, construction
financing, asset equity, debt financing and more :- It is really very critical to say, “ Really is
there any financing options are available for a businessman against a project;
I mean viable financing options in India; Taking finance from anyone in India
means just – “Be a slave to that institution in general”. But nothing to worry;
Oil and gas investing isn't going anywhere. Recently, independents have faced
greater challenges than their larger peers in attracting financing on
reasonable terms due their past records of mishandling of the project and
negative warrants from financial institution. Lenders are looking for companies
led by a strong management team with a combination of a good reputation in the
industry, quality projects or assets, financial track record and the ability to
deliver on promises.
Despite
the risks, there is still a very real demand for energy, and oil and gas fills
part of that demand. Investors can still find rewards in oil and gas, but it
helps to know the potential risks that go along with those potential rewards.
They have to be very accurate about some environment and impact before going to
ask for funding– like political, geological, price risk, cost risk, demand and
supply risk; As I have quoted above Political Risk to Cost Risk >=0 you will
get the finances from 0 to n; But the institution will analyze your data –
keeping in mind that the Government is okay with it or not; What is the opinion
of the Political Master and The Political masters stability condition in the
Government and The Government Stability condition will be analyzed before your
funding; I know, you got the answer what I mean; If the Government is at risk
your financing option is also at risk from Government Institutions; And the second
factor is the -<> Geological Data Risk -<> because, even the
Geologist are not sure about the availability of the product & quantity in
the deep sea, or onshore in any condition; That is why they use in their report
proven oil block, but not the quantity; It is a risk to get funding; If someone
has this data accuracy, then nothing can be struggling to hatch the finances
from Institution or Private Lender; The risk is high when, demand supply in the
market is not stable, when more supply from other companies are available it
worries the investor about investing in you, seeing the capital intensive risky
game; But in India it is good to start but now;
Despite
all the gimmicks and challenges; Investor has high regard for this industry;
The oil and gas industry has been experiencing a period of major investment due
to capital intensive nature of the business, and ate around 800 Billion USD in
past 18 years; Despite the industry’s immense enthusiasm for capital, compared
to other capital intensive industries, it has been relatively conservative when
it comes to financial structuring. It is due to lack of confidence in the
business in diverse field of operations; But still after formation of the new
stable Government and Government mood to become energy independent state has
given an opportunity for the banking sector to quench their hunger of
investment with acidic test for the project; One bank can’t make the huge
investment, hence bank make consortium to fund the project; Thank to the
Government the last few months can be broadly can be seen as combined with
corporate credit conditions that were initially tight but are now accommodative.
But at the same time Banks are forced to introduce tighter lending controls in
response to new legislation. However, caution around risk management and the
pressure to deliver an appropriate return has led banks to tighten lending
standards, particularly for small-to-medium-sized borrowers. But if you are okay with it, and the new
Banking Code for willful defaulters, you will get banking support supportive;
But
other mature options are also available to Industry Leaders those are in LNG
and Exploration Business can have – IPO, Private Equity, Further IPO; And,
Development of an Oil Field Funding is based on - Reserves based lending (i.e.
capacity & quantity of the product shown by the geologist) can also go for
Public bonds, Retail bonds, Institutional Project finance and the best not the
last Private placement programme; Small Capital investors in a group is also a
valid option;
But Any one who will invest will put scanner in you and in the project
be ready for that; Examples of screening criteria and the different stage-gates
from Asia Pacific investment sources-:-
“Investor has the requirement to invest, as the entrepreneur has the
requirement of a good investor; If the investor will not invest, it will be
wastage or it will decrease the strength of money accrued, like otherwise, it's
a little like saving sex for your old age”. Entrepreneurs who are just
starting out typically have very different needs than those well established
and ready to expand their companies.
Many investors have found that their own skills are better suited to
helping one type of entrepreneur than another.
As a result, investors tend to define their investment preferences by
stages in the company’s development.
Three
types of equity investors participating in business of oil and gas: business
angels, private venture capitalists and public venture capital funds. The investor goes for screening at least the
following five areas in a Company: (1) characteristics of the entrepreneur(s),
(2)characteristics of the market, (3) characteristics of the venture offering,
(4) investor(s) requirements and (5) characteristics of the investment
proposal.
Like
I said above the following five is must to hatch the investment, the main
criteria is Proven entrepreneurs i.e. characteristics of the entrepreneur(s). I
mean to say that the KYC of the Entrepreneur
must be sound enough to have face value acceptance; The success of the
investments depends on the quality of entrepreneurs the investors partner with.
The Investor seek partners with a track record of exceeding goals, a proven
ability to adapt to changing markets, and a history of managing successful
challenging organizations. Whose basic criteria is that investment made on the
track record and trust in the entrepreneur not totally liable on the company
can be used as – “Seed stage financing investors” this type of financing a
project normally provided to prove a concept and is typically used for
developing a prototype.
Secondly
the investor screens the market i.e. the characteristic of the market where the
investor is going to put his money; But now-a-days seeing the oil market
turbulence, the investor may make it underline with red mark, as the investor
may not get any satisfactory report from industry critics; But there you can
make your investors satisfied by today’s innovative technology, market
knowledge and giving actual data of risk factors with some options of no lose
theory, will attract investor; The investors whose criteria is based on the
characteristic of the market and the product sale in the market – here you can
use Start-up stage of investors. Start-up stage financing is provided to
companies for use in product development and initial marketing. Companies may be in the process of being organized
or may have been in business for a short while (usually a year or less), but
have not yet sold their product commercially.
Third
type of investors get you in whose interest is in the venture i.e. their
screening criteria of the investor is characteristics of the venture offered by
the Entrepreneur; They check credibility of demand and supply and the
organization marketing capabilities, not only that you have to prove that you
have sufficient order in place, if given opportunity, it will be profitable to
invest; This type of investors are known as First Stage Investors; Don’t
confuse it with Seed Investors; First-stage financing is provided to companies
that have expended their initial capital and started to sell their product, but
require additional funds to initiate full commercial production and sales.
Fourth
the investor screens the Company, for if they can fulfill its expectation
against investment made; They will see your all things, Balance Sheet, IRR, and
many more; They are more drama oriented then a real investor; Here, you can lie
in black and white, and he will be happy like blind man, and will call you with
some “listened questions” to shake you up; They will down your profile and will
call you so many times, can you guess who are they; They are your Banks; or
Private Money Holders; Or Lala investors; Or UITs (unit investment trusts);
Fifth
is the characteristics of the investment proposal I mean to say the investment
to be made thru Bonds, Stocks, Mutual Funds, or other resources; But overall
investors consider the general characteristics of the entrepreneur(s) as most
important when deciding to invest in an early stage Exploration based company.
On the other hand, as a group, BAs consider the characteristics of the venture
offering (product or service) as next in importance after the entrepreneurs
themselves. This is followed by
characteristics of the market targeted by the venture. BAs are commonly regarded to be the primary
source of financing for early stage companies. n contrast to BAs, PVCs as a
group tended to consider the characteristics of the market being targeted by
the venture as being of greater importance than characteristics of the venture
offering. Most PVCs are mandated by
their venture capital firm to provide its shareholders with a rate of return on
the investment between 25% and 40%. As a
result, their primary objective becomes seeking investments in companies which
can provide this sort of return.
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