Development of Natural Gas Assets in Frontier Offshore Areas Under Challenging Technical and Economic Environment - A Project Finance with Real Options Approach

摘要

Gas field developments have been fundamental in the transition of moving toward a cleaner worldwide energy matrix. These developments normally flourish in the presence of large volumes, suitable infrastructure and committed demand through long-term contracts with LNG plants, electricity hubs, large industrial facilities, and other extractive developments. However, in frontier offshore areas with medium or marginal volumes, lack of infrastructure, social conflicts and uncertain demand, a gas field development becomes challenging. This work proposes a methodology to make these assets financially viable in the presence of managerial flexibilities by combining the concepts of volumetric risk analysis, project finance and proper government incentives. Volumetric risk analysis would handle subsurface uncertainties to estimate recoverable hydrocarbons and Project Finance would allow sponsors to isolate the risky development from their project portfolio. This financial structure requires the creation of a specific entity with a high debt-equity ratio and the utilization of the entity’s cash flow as a main source of debt repayment. Consequently, project participants can stand higher level of risk allocation. Moreover, if the project takes place in a developing country, multilaterals institutions can facilitate loans, guaranties, equity contributions and their expertise to handle social conflicts. Related to government incentives, this paper focuses on two main aspects: royalty relief as a percentage of proved reserves and the effectiveness of holding a lease block by production. In the first aspect, the target is to maximize both the resource recovery of the field and the capital investment. The second one grants an operational flexibility for field abandonment The methodology was applied to an offshore gas field in the northern part of Peruvian coastline, an area with scarce gas resource developments and limited offshore hydrocarbon infrastructure. Considering a probabilistic approach to estimate the resources, the model shows that financial viability of the project depends on both the optimal design of the project finance deal and the managerial flexibilities that handles the relatively uncertain gas demand of another risky asset (a mine and/or an industrial plant). In addition, suitable government incentives enhance the attractiveness of the project by allowing a more robust financial design and better use of project real options.The novelty of this work relies on performing an optimal resource and financial structuring of a risky offshore development under the consideration of managerial flexibilities. To this end, this paper applies real option theory to value the following project opportunities for both sponsors and government: 1. Learning about the resource potential of the field and surrounding areas. 2. Project expansion that depends on the resource volume and gas demand. 3. Investment delay and possibility of early abandonment.