Sakhalin Energy Project Financing – Lessons Learned
- Rob Van Velden (Sakhalin Energy Investment Company)
- Document ID
- World Petroleum Congress
- 21st World Petroleum Congress, 15-19 June, Moscow, Russia
- Publication Date
- Document Type
- Conference Paper
- 2014. World Petroleum Council
- 0 in the last 30 days
- 84 since 2007
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Sakhalin Energy, one of the larger integrated oil & gas projects, executed under the first signed PSA in Russia, obtained international project financing at the end of the last decade. Rob van Velden, Finance Director of Sakhalin Energy, will discuss the challenges the Company went through to obtain project financing, and the impact of project financing on Sakhalin Energy’s ongoing operations. Today the Company has established a strong reputation in the Asia Pacific LNG market and has good relations with its lenders group. The Company is confident about its future and looking for possibilities to expand the project where additional project financing may well play a key role yet again.
Sakhalin Energy celebrates its 20th birthday this year. Looking back there is indeed cause for celebration. What during the construction phase seemed at times an impossible task has developed into today a grown up Company with a strong reputation. Sakhalin Energy is a reliable energy supplier in the Asia Pacific and a responsible operator in a difficult sub-arctic environment.
Sakhalin Energy staff with its contractors, and with the support of Shareholders and the Russian Federation as a party to the PSA completed successfully a very large and complex integrated oil & gas project at the end of the last decade, and since then went from strength to strength. The Company has captured as the first Russian exporter of LNG some 4% of the global market, and supplies reliably some 10mt of LNG per annum to satisfied customers in Japan and Korea mainly. In addition the Company produces and markets oil, with an average production in 2013 of around 110,000 bbl per day. Furthermore the Company supplies gas to the domestic gas market on Sakhalin, in line with Russia’s Far East gasification program, enabling for example a switch from coal to gas fired power production in Yuzhno-Sakhalinsk, the capital of the Island,
In the last few years the Company generated with these activities some $10bn revenues per annum safely and with no harm to the environment, paid handsome dividends to shareholders and provided substantial returns to the Russian Federation. Today Sakhalin Energy is by far the largest tax payer on Sakhalin Island. Looking forward there is reason for further optimism. Sakhalin Energy has gas reserves in place to keep its LNG trains fully utilized well into the next decade, and continues to develop its oil reserves; all this will be done at competitive cost, ensuring robustness of the Company also in case of less favourable pricing circumstances. Furthermore the Company has embarked on studies to review further expansion of its LNG plant with a 3rd train adding 50% capacity to what we have today. We are in no doubt that our LNG expansion project will be competitive compared to other developments in the region, and we believe our current and possible new customers will look forward to more reliable LNG cargoes from Sakhalin Energy in the market.
Now some comments on project financing in Sakhalin Energy. At the time of project completion Sakhalin Energy’s shareholders had invested for over a decade substantial funds in the project and were looking for early returns after start up amongst others. Project financing was considered as a legitimate tool to deliver this, and was therefore pursued. A consortium of banks led by the Japanese Bank of International Cooperation (JBIC) agreed to finance the project for a significant proportion of invested CAPEX. The choice for JBIC and a substantial Japanese syndicate for the loan was no coincidence; Sakhalin Energy sells a substantial part of its LNG volume to Japanese power companies, two of Sakhalin Energy’s shareholders are Japanese companies, and a Japanese EPC contractor led the construction of the LNG plant. The project financing was completed in 2009 and put shareholders in a financially better position to continue support of development of the Sakhalin Energy oil & gas fields.
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