Presented By:

Hsiang-Ling HuangKim Ngo

Sina Partow-Navid Mike Strom

Ras Laffan’s Background

Case Summary

Issues

Alternatives

2

3

4

5

Agenda

Recent Developments7

Recommendation6

Our Group’s Job1

Analysts at Broadway Value and Growth Fund

Our Group’s Job

Evaluate the Ras Laffan bonds

Give our recommendation

Discuss the potential returns and risks

Ras Laffan Ownership

Itochu

Ras Laffan LNG

“RasGas”

Nissho Iwai

Mobil QMQatar

General Petroleum

Govt. of Qatar

Mobil Corp.

26.5 %66.5 %

4 % 3 %

100 % 100 %

Hamad Al Mohannadi

Thomas J. Mc Hale

Khalid Bin Al Thani

Concept

Concept

Concept

Ras Laffan Key Management

Finance Manager

RasGas Managing Director - CEO

Ras Laffan - CEO

Pre-treatment

Field Processing Liquefaction

Storage & Export

Facilities

Removal of

Impurities

“Train”

Gas Reserves

LNG Train

Oil or Condensate

to Export

LNG Vessel

Ras Laffan Capitalization

EquitySenior Debt

Net Operating

Cash Flow

$3.74 B100%

$389M

$1 B $2.35 B26.9%

62.7%

10.4%

Funds to be Raised

$3.35 Billion

$704M $383M$1.2B $764M

Expected Funds

$302M

Mobil QMQatar General

Petroleum

Equity Investors(26.9%)

Bonds Commercial Banks

Export Credit

Agencies

Senior Debt(62.7%)

The Project Finance Bonds

$1.2 Billion

$400M $800M

Coupon rate of 7.6 %

Matures in 2006

135 basis points above US treasuries

Non-recourse

For institutional buyers only

Coupon rate of 8.3 %

Matures in 2014

187.5 basis points above US treasuries

Non-recourse

For institutional buyers only

The Customer

Korean Municipalities

Korea Electric

Company

Republic of Korea

34.5 % 15.4 %50.1 %

Korea Gas Corporation

The Customer (Cont.)

Korea Gas Corporation

Accounts for 90 % of LNG sales

Signed 25 year LNG Supply & Purchase Agreement

Spent $7 billion on LNG infrastructure investments

Additional $1.2 billion per year until 2000

6 loading berths and 53 storage tanks by 2013

The Customer (Cont.)

Korea’s LNG demand: Growing 20% per year

Kogas forecasts: 7% annual growth demand for LNG

Korean customers pay Kogas in korean won.

Kogas pays Ras Laffan for LNG in US dollars.

The Contract

Supply & Purchase Agreement includes:

LNG prices linked to JCC index

4.8 million metric tons of LNG annually

A take-or-pay clause

Estimated start price: $3.88 per MMBTU

Kogas responsible for transportation of LNG

Other Agreements

Qatari Govt.: 12 year tax holiday

Mobil: $200 million fund for debt servicing shortfalls

The Intercreditor Protection Agreement

The Security Trust Agreement in New York

Qatari law: Lenders cannot have interest in LNG facilities.

Energy CommodityPrice

Foreign ExchangeRisk

Reliance onSingle Customer

PoliticalRisk

Low

Low

High

High

Importance

Urgency

Basic Issues

Credit Risk/Default Risk

Unilateral Changesto The Contract

Cash FlowConstruction

Risk

Low

Low

High

High

Importance

Urgency

Immediate Issues

Demand

ProductionProblems

Economic Stability

Breach of Contract

Energy Commodity

Prices

Credit / DefaultRisk

Cause and Effect

2001 2002 2003 2004 2005 2006 2007 2008

LNG Price $3.17 $3.26 $3.36 $3.46 $3.56 $3.67 $3.78 $3.89

Revenue $800.6 $1016.8 $1048.6 $1078.9 $1112.2 $1144.9 $1181.4 $1221.2

Cash Flow for Debt

$395.52 $700.97 $721.37 $731.75 $760.21 $786.09 $796.94 $832.56

Total Debt Service

$255.3 $405.3 $392.0 $379.4 $366.9 $353.3 $269.9 $261.9

Debt Coverage

Ratio1.55 1.73 1.84 1.93 2.07 2.22 2.95 3.18

Cash Flow (Base Case)

2001 2002 2003 2004 2005 2006 2007 2008

LNG Price $2.48 $2.53 $2.58 $2.63 $2.69 $2.74 $2.79 $2.85

Revenue $645.6 $811.6 $825.8 $838.4 $855.5 $867.5 $881.4 $899.3

Cash Flow for Debt

$295.34 $527.3 $533.89 $529.6 $545.19 $552.25 $544.04 $561.28

Total Debt Service

$255.3 $405.3 $392 $379.4 $366.9 $353.3 $269.9 $261.9

Debt Coverage

Ratio1.16 1.30 1.36 1.40 1.49 1.56 2.02 2.14

Cash Flow (Reduced Price)

Kogas“Korea Gas”

Ras Laffan“Ras Gas”

Bondholders

Korean Customers

LNG Delivery

LNG Delivery

Korean Won

New York Trust Agreement“Escrow Account”

US Dollar

US Dollar

US Dollar

Currency Exchange Cycle

Currency Exchange History

Source: Pacific Exchange Rate Service, Warner Antweiler, University of British Columbia

KRW / $

Currency Exchange Risk

Forecast: Korean Won to depreciate against US Dollar

Depreciation in Korean Won:

Possible breach in contract by Kogas

No payment to Ras Laffan will result in default to Bondholders.

Currency Exchange Risk (Cont.)

Mitigating the risk:

Start selling LNG into the world market.

In the contract require Kogas to hedge the US dollar.

Compensate for tasking the risk:

Ask for a higher rate of return on the Bonds.

Higher Crude Oil Prices:

Cause higher LNG prices

Could cause other energy sources to be more affordable

Could cause Kogas to default

Commodity Prices

Mitigating Risk Factors:

“Take or Pay” clause for 4.8MMTA

Korea government is committed to agreement

Will shift consumption if necessary

Kogas has spent over $7 billion in LNG infrastructure.

Commodity Prices (Cont.)

Ras Laffan 2nd Least expensive LNG in world (1997):

Risk of LNG price falling below break even point

Mobil’s $200 million for LNG price shortfalls

Commodity Prices (Cont.)

Borneo $3.20

Ras Laffan $3.88

Australia $4.60

Alaska $4.80

Indonesia $5.90

Kogas is a lower default risk:

Kogas net income averages 3%

Continuous profitability to meet obligations

Commodity Prices (Cont.)

Credit rating (1996)

S&P AA

Moody A3

Commodity Prices (Cont.)

Nationalizaton risk – low

66.5% ownership in Ras Laffan

Pro American Government

Relations w/U.S. “strong and expanding”

Emir is a strong supporter of U.S. relations

Capital Flight – low risk

Exports > Imports

Good economic policies

Political Risk – Qatar Gov’t.

Economic:

Qatar GDP per capita: $36,000 (1996) and rising

Inflation averaged 3.4% (1980 – 1996)

Taxation:

No personal taxes

Corporate taxes range from 10-35%

Political Risk – Qatar Gov’t. (Cont.)

Unemployment:

2.7% (2003) and decreasing

Note: Political Insurance not available through OPIC

Result – low political risk

Political Risk – Qatar Gov’t. (Cont.)

Political Risk – Location

Qatar Defense:

10% of GDP

12,000 troop military (2% of Population)

8,000 person public security force

Political Risk – Terrorism Risk

Qatar security force’s: “Admired” by security experts

U.S. security forces work closely with Qatar

Terrorism rating:

Rated as “infrequent and based on soft targets”

Result – terrorism risk is “high”, but manageable

Political Risk – Terrorism Risk

“Take or Pay” clause for 4.8MMTA

LNG is clean and affordable

70% less green house gasses than coal

Similar price to coal

LNG is one of larger energy sources in South Korea

Risk of 1 Key Customer

Risk of 1 Key Customer (Cont.)

South Korean Gov’t: Committed to LNG

Qatar: Largest supplier of LNG to South Korea

Risk of 1 Key Customer (Cont.)

1 - Japan2 - S. Korea

3 - France

4 - Spain

5 - Taiwan

6 - Belgium

7 - Turkey

8 - USA

Qatar

Mitigating Risk:

Identify other potential customers for LNG

Risk of 1 Key Customer (Cont.)

Decision Criteria

1

2

3

Profit

Risk Exposure

Cost

Loss of potential

profit

Pros Cons

Don’t Invest

Profit

1

2

3

Risk Exposure

Cost

1

1

Other potential

InvestmentOpportunity

Costs

None0%

None$0

None0%

Profitable 7.6%

Pros Cons

Invest in Bond 2006

Profit

1

2

3

Risk Exposure

Cost

1

1

Moderate135 points above US treasuries

Capital investment up to $400M

Opportunity Costs

Non-recourse

Profitable 8.3%

Pros Cons

Invest in Bond 2014

Profit

1

2

3

Risk Exposure

Cost

1

1

Capital investment up to $800M

Opportunity Costs

Manageable188 points above US treasuries

Non-recourse

Profitable 7.6% and 8.3%

Pros Cons

Invest in Both Bond

Profit

1

2

3

Risk Exposure

Cost

1

1

Capital investment up to $1200M

Opportunity Costs

ManageableHigh points above

US treasuries

No Diversification

Higher Profit

Pros Cons

Ask for Higher Return

Profit

1

2

3

Risk Exposure

Cost

1

1

Demanding requirement up to $1200M

Opportunity Costs

ModerateOffset Risks

Risk of not able to buy the bonds

Criteria

Alternatives

Decision Making Matrix

Risk Exposure CostProfit

None

Minimal

Moderate

High

Moderate toHigh

None

Moderate

High

High

Moderate toHigh

None

Moderate

High

High

High

Don’t Invest

Invest in 2006 Bond

Invest in 2014 Bond

Invest in Both Bonds

Ask for Higher Return

Our Recommendation:

Initially, only invest the bond due in 2006

The return outweighs the risks

Significant risks can be mitigated

Must negotiate for higher rate of return for 2014 bond

Recommendation

1. Broadway Growth Fund: Invest in bond due in 2006

2. Prior to investing in bond due in 2014:

Ras Laffan:

Must require Kogas to hedge the US dollar

Broadway Value & Growth Fund: Obtain political insurance for Qatar

Negotiate higher rate of return

Action Plan

Recent Developments

Bond sale was well-received by global investors.

Dec 1996: Bonds sold out first day of offering

Ras Laffan project huge success.

Train 1 and 2 were completed on time in 1999.

Recent Developments (Cont.)

Source: Pacific Exchange Rate Service, Warner Antweiler, University of British Columbia

KRW / $

Recent Developments (Cont.)

Additional projects launched:

Train 3, 4, 5, added in 2004, 2005, 2006 respectively.

Funding for new trains: Additional bonds sold

Bonds (II): $1.57 billion sold in 2005

Bonds (III): $1.86 billion sold in 2006

Train 6 & 7 scheduled for completion in 2009.

Recent Developments (Cont.)