BP Unveils BTC Project Structure BP Unveils BTC Project Structure

VOL. XLIV

No. 29

16 July 2001

CASPIAN

BP Unveils BTC Project Structure

Speaking during the Kazakstan Oil and Gas Conference in London on 4 July, Wref Digings, BP’s Vice President Export Development, has outlined the financial structure for the Baku-Tbilisi- Ceyhan (BTC) crude pipeline project. Mr Digings stressed that contrary to reports that had appeared in the media the previous week, the BTC project remained open to interested third parties - including those from Kazakstan - that wish to commit volumes of oil to the proposed pipeline. Mr Digings also confirmed that the BTC line and the BP-led Shah Deniz gas pipeline would be built under one management team (MEES, 18 June).

At present, the proposed BTC company structure comprises members of the Azerbaijan International Operating Company (AIOC) with percentages as follows: State Oil Company of the Azerbaijan Republic (Socar) 30%; BP 25.72%; Unocal 7.74%; Statoil 6.45%; TPAO 5.08%; Itochu 2.96%; Delta Hess 2.05%; Third Party Reserve 20%. Devon of the US was a small stakeholder in the BTC sponsor group for a short time, but recently dropped out. ExxonMobil and Lukoil, both members of AIOC, have yet to express an interest in joining the group.

The shareholders are to form two Cayman Islands exempt companies by the end of the year. The shareholders will have a 99% pro rata limited liability stake in BTC Company and a 100% pro rata limited liability stake in BTC Company II, which will take a 1% unlimited liability stake in BTC Company. BTC project assets and liabilities will come under BTC Company.

Mr Digings also provided an update on the status of the project. A 12-month detailed engineering study for the project was initiated in late June and when completed will provide technical information regarding: the finalization of the construction corridor (see map, MEES, 9 April); detailed engineering for and the definition of the pipeline system; preparation of a Class II cost estimate (plus or minus 20%) and an associated schedule; and the finalization of the Project Execution Plan (PEP). The “Execute Phase” construction contracts are to be tendered, evaluated and ready for award soon afterward. Environment Impact Assessment (EIA) and Social Impact Assessment (SIA) work is also to be completed by the end of this period.

On the commercial side, the next year should see the finalization of the BTC Company owner group - including the entry of new investors - and the completion of BTC owners’ agreements. Transportation agreements for AIOC’s Azeri-Chirag-Guneshli (ACG) crude and other agreed volumes are to be reached, as well as operational agreements necessary to implement the project. Also due for finalization are the lender term sheets for project financing. The detailed engineering study will be followed by a 32-month period during which land acquisition, construction and commissioning will be carried out. This phase includes building the pipeline system and terminal at Ceyhan, testing and filling the pipeline with 3mn barrels of crude and the first delivery of crude in the first quarter of 2005. During this phase, project financing will be complete and new third-party shippers will join on an ongoing basis. (For an earlier report on the status of the BTC project, see MEES, 9 April.)

The cost of the BTC line will be in the range of $2.8-2.9bn. Basic engineering – which was finished in June - cost $25mn; the detailed engineering phase, which will include charges for procurement of financing, will cost $150mn; land acquisition and construction will total $2.7bn. As presently planned, BTC will have a target debt of $2.3bn and equity totaling $1bn. The total funding requirement of $3.3bn includes interest during construction and financing costs, and according to Mr Digings the economics of the project as currently envisaged can support the debt level provided there are good average debt service coverage ratios. Mr Digings said that if project sponsors were to attempt to borrow the entire total $2.3bn debt from the financial markets, the prospective line-up would look as follows: IFC A loan, $150mn; IFC B loan, $150mn; EBRD A loan, $150mn; EBRD B loan, $150mn; MIGA/OPIC covered loans, $300mn; loans made or covered by export credit agencies (ECAs), $1.4bn.

At this stage it is envisioned that the 1,777km, 1.011mn b/d pipeline will have seven pump stations, two in Azerbaijan, one on the Azerbaijani-Georgian border, two inside Georgia, one on the Georgian-Turkish border and one in Turkey. The pipe will be 42in in width for the first 700 kms of the route, 46in for the next 900kms and 34in for the remainder. Project contractors include Baker and Botts for legal matters, Lazard, Sullivan and Cromwell for finance and Bechtel for detailed engineering (MEES, 28 May). Turkey’s Botas will be in charge of the Turkish sector and has subcontracted ILF, Yuksul Proje, and Temelsu for engineering and Environment Research Management (ERM) and Energy and Environmental Investment Inc (ENVY) for environmental studies. Whole line system alignment will be handled by Bechtel, while Stone and Webster will serve as independent engineers.

Regarding the joint management of the BTC and Shah Deniz pipelines, Mr Digings pointed out that an integrated approach would be beneficial for land, equipment and right-of-way engineering and would allow both projects to make use of common infrastructure and resourcing. He added that it would also minimize risks to the environment and provide better safety and logistics. One contractor per country would be used to construct both pipelines, he said.