Screenshow US template - PowerPoint PPT Presentation

1 / 27
About This Presentation
Title:

Screenshow US template

Description:

... purport to be appraisals of the assets, stock, or business of the State or any ... Prudhoe Bay: Conoco Phillips, BP Amoco, ExxonMobil, State of Alaska ... – PowerPoint PPT presentation

Number of Views:45
Avg rating:3.0/5.0
Slides: 28
Provided by: ppsde68
Category:

less

Transcript and Presenter's Notes

Title: Screenshow US template


1
J U N E   1 6 ,   2 0 0 4
I N T E R I M   H E A R I N G S    A L A S K A 
 N A T U R A L   G A S   P I P E L I N E 
 I S S U E S
LEGISLATIVE AUDIT BUDGET COMMITTEE SENATE
RESOURCES COMMITTEE
2
This presentation was prepared exclusively for
the benefit and internal use of the State of
Alaska (the State) to whom it is directly
addressed and delivered in order to assist the
State in evaluating, on a preliminary basis, the
feasibility of a possible transaction or
transactions and does not carry any right of
publication or disclosure, in whole or in part,
to any other party. This presentation is for
discussion purposes only and is incomplete
without reference to, and should be viewed solely
in conjunction with, the oral briefing provided
by JPMorgan. Neither this presentation nor any
of its contents may be used for any other purpose
without the prior written consent of JPMorgan.
The information in this presentation may be
based upon any management forecasts provided to
us and reflects prevailing conditions and our
views as of this date, all of which are
accordingly subject to change. In preparing this
presentation, we have relied upon and assumed,
without independent verification, the accuracy
and completeness of all information available
from public sources or which was provided to us
by or on behalf of the State or which was
otherwise reviewed by us. In addition, our
analyses are not and do not purport to be
appraisals of the assets, stock, or business of
the State or any other entity. JPMorgan makes no
representations as to the actual value which may
be received in connection with a transaction nor
the legal, tax or accounting effects of
consummating a transaction. JPMorgans policies
prohibit employees from offering, directly or
indirectly, a favorable research rating or
specific price target, or offering to change a
rating or price target, to a subject company as
consideration or inducement for the receipt of
business or for compensation. JPMorgan also
prohibits its research analysts from being
compensated for involvement in investment banking
transactions except to the extent that such
participation is intended to benefit
investors. JPMorgan is a marketing name for
investment banking businesses of J.P. Morgan
Chase Co. and its subsidiaries worldwide.
Securities, syndicated loan arranging, financial
advisory and other investment banking activities
are performed by J.P. Morgan Securities Inc. and
its banking affiliates. JPMorgan deal team
members may be employees of any of the foregoing
entities.
3
Presenters
JPMorgan
Garth Salisbury Managing Director Investment
Banking Energy and Western Region Nancy
Rohman Vice President Investment Banking
Western Region
1
4
Agenda
  • Effects on the financing components of a pipeline
    tariff
  • Introduction and Assumptions
  • Debt / Equity Ratios
  • Tax-Exemption (Debt)
  • Federal Loan Guarantees

2
5
Introduction and Assumptions
S T A T E   O F   A L A S K A
3
6
The final outcome on Alaska Natural Gas Pipeline
will be dictated by a large group of stakeholders
including but not limited to
  • Producers
  • Prudhoe Bay Conoco Phillips, BP Amoco,
    ExxonMobil, State of Alaska
  • Other North Slope Anadarko, AEC
  • Mackenzie Valley Imperial Oil Resources gt 3
    tcf, ConocoPhillips Canada and Exxon Mobil 1.8
    tcf, and Shell gt 1tcf
  • Pipeline interests
  • ANGTS MOU participants Foothills, Williams, Duke
    Energy, Sempra Energy, Enron, PGE Corp, El Paso,
    and TransCanada Pipelines
  • Mackenzie Delta MOU participants TransCanada
    PipeLines, Aboriginal Pipeline Group
  • Other Enbridge and Alliance Pipeline
  • Government bodies
  • State of Alaska
  • Senate Committee on Energy and Natural Resources
  • House Committee on Energy and Commerce
  • Federal Energy Regulatory Commission (FERC)
  • Canadian interests National Energy Board (NEB)
  • Native Alaskan and Canadian groups

Source CIBC research report 6/23/03
4
7
Current market conditions will support the
construction of future northern gas pipeline
projects
US / MMBtu 1-year average
  • Market price will drive the investment decision
  • Industry experts have established trigger
    prices for the projects that take into
    consideration the estimated capital and operating
    costs associated with each project
  • These costs are added to the gas production costs
    at each respective basin and a minimum lower-48
    market clearing price needed to make the projects
    economical is established

Source EIA Annual Energy Outlook 2003, CERA
Cambridge Energy Research Associates, June 11,
2003 Note Trigger price calculation assumes
production costs of Alaskan gas and Mackenzie
Delta gas to be 0.80 and 1.00 respectively
5
8
Pipeline cost and scope projections vary widely
For purposes of this Hearing, we are assuming
  • Project cost
  • North Slope Gas Treatment Plant (GTP) - 2.6
    Billion
  • Pipeline from North Slope to Alberta (A to B) -
    11.6 Billion
  • Pipeline from Alberto to Lower-48 (B to C) NA
  • NGL Facility - NA
  • Total project cost 14.2 Billion
  • Throughput 4.5 Bcf/d
  • Project life / term of debt 30 years / taxable
    debt
  • Shipping contract term (initial) 15 years
  • Project bond ratings A/A
  • Debt to equity ratio 60 / 40
  • Return on Equity 12
  • Depreciation methodology straight-line, for 30
    years

6
9
In order to isolate the effects of specific
financing inputs, we have calculated a base case
financing tariff
Rate Base
Tax Rate
Asset Life
Capital Structure (D/E Ratio)
Tariff / Dth (or MMBtu)
Annual Throughput
Contract Term
Capital Expenditure
Return on Equity (ROE)
Operating and Maintenance Cost
Use of Federal Loan Guarantee
Tariff Structure Policy
Tax Status of Debt
7
10
The pipeline tariff will be based on a host of
financial, operational and policy level inputs
  • Incremental tariff cost due to financing costs

Rate Base
Tax Rate
Asset Life
Capital Structure (D/E Ratio)
Tariff / Dth (or MMBtu)
Annual Throughput
Capital Expenditure
Contract Term
Return on Equity (ROE)
Operating and Maintenance Cost
Use of Federal Loan Guarantee
Tariff Structure Policy
Tax Status of Debt
8
11
Financing assumptions
Fixed Financing Inputs
Financing Sensitivities
Rate Base
Base Case
Range
14.2 Billion Financing Cost
Capital Structure
60 Debt 40 Equity
50 - 67 Debt 50 - 33 Equity
Tax Rate
38 Tax Rate
Return on Equity
12
10 - 14
Throughput
4.5 Bcf/day
Tax Status
Asset Life
Taxable or Tax-Exempt
Taxable
30 Years
Fed Loan Guarantee
Contract Term
No Guarantee
Guarantee or No Guarantee
15 Years (Initially)
Base Case Incremental Financing Tariff
0.79/Dth (or MMBtu)
9
12
Debt / Equity Ratios
S T A T E   O F   A L A S K A
10
13
Based on an analysis of large NG pipeline project
financings, we assumed a debt ratio of between
50 and 67
  • Common Debt/Equity Ratio for pipeline projects
    range from 50/50 to 70/30.
  • We are assuming a range of 50/50 to 66.67/33.33.

Capital Structure
Assuming an A rating
Base Case Scenario
  • In year 1, the base case scenario produces a
    tariff of 1.29/Dth and the 30-year taxable
    bullet scenario produces with 60/40 Debt/Equity
    Ratio and 12 ROE produces a tariff of 1.27/Dth.

11
14
Based on an analysis of large NG pipeline project
financings, we assumed an ROE of between 10 and
14
  • FERC-filed tariffs allow for a specific Return on
    Equity (ROE).
  • Generally speaking, the allowed ROE can range
    from 10 - 14.

Return on Equity
Total Cost of Debt Equity 35.7 Bn
Assuming an A rating
Total Cost of Debt Equity 30.1 Bn
12
15
Tax-Exemption (Debt)
S T A T E   O F   A L A S K A
13
16
Comparison of 30-year Treasury to 30-Year RBI
Treasury versus RBI1

2
2
1 Reflects market conditions as of June 10,
2004. 2 The Revenue Bond Index (RBI) is based on
30-year bonds issued by 40 different revenue bond
issuers for a variety of purposes including
housing, transportation, hospitals and pollution
control. The RBI is widely used as a benchmark
for long-term revenue bonds.
14
17
The debt portion of the capital structure may be
financed with tax-exempt municipal bonds
  • Municipal bonds are debt securities issued by a
    U.S. state, local government or a governmental
    entity.
  • They are typically issued to raise capital for
    building roads, schools and other public
    infrastructure projects.

Tax Status Of Debt
  • The interest on municipal bonds is exempt from
    federal income taxes
  • The interest paid to investors is exempt from
    income taxes
  • Tax-exempt rates paid by borrowers are lower than
    taxable rates
  • This tax-exemption is considered as a subsidy by
    the U.S. Treasury, and therefore strict
    regulations govern the use of tax-exempt bonds
  • Municipal bonds are often secured by tax revenue
    - such as the general taxing power of a
    governmental entity, or a specific stream of
    enterprise revenues - such as those from an
    airport or utility.

15
18
Perspectives on the benefits of U.S. income
tax-exemption
  • Taxable equivalent yield (TEY) The yield which
    must be received on a taxable security to provide
    the holder the same after-tax return as that
    earned on a tax-exempt security a function of
    both the tax-exempt yield and income tax bracket
    of the investor.

Tax Status Of Debt
Example An investor in the 35 tax bracket is
indifferent between earning 5 on a tax-exempt
security and 7.70 on a taxable security.
16
19
Why corporations and wealthy individuals buy
municipal bonds
17
20
Advantages and disadvantages of tax-exempt debt
Advantages
Disadvantages
  • Lower interest costs
  • Serial bonds
  • Flexible call options
  • Favorable capital charge (Bank Regulatory)
  • Active retail sector
  • Significant tax law constraints
  • Fewer deep pocket investors

18
21
Value of tax-exemption
  • Tax-exemption could significantly reduce interest
    costs and debt service.
  • Historically, tax-exempt debt has been worth more
    than in the current market.

Tax Status Of Debt
Assuming an A rating
Base Case Scenario
  • Based on historical averages of rates, base case
    produces average tariff of 0.83/Dth and
    tax-exempt scenario produces average tariff of
    0.79/Dth.

19
22
Federal Loan Guarantee
S T A T E   O F   A L A S K A
20
23
Section 386 of the Energy Policy Act of 2003
provides for Federal Loan Guarantees
Energy Policy Act of 2003 Title III Oil and
Gas Subtitle D - Alaska Natural Gas
Pipeline Section 386 Federal Loan Guarantees
Federal Loan Guarantee
Key Provisions of the Federal Loan Guarantee
  • Section C Limitations on Amounts
  • Amount of loans or other debt obligations
    guaranteed for a qualified infrastructure project
    may not exceed 80 of the total capital costs of
    the project, including interest during
    construction
  • Loan Guarantee is capped at 18 billion, indexed
    by CPI
  • Section D Loan Terms and Fees
  • Term of the Loan Agreement shall not exceed 30
    years
  • Section G Definitions
  • Federal Loan Guarantee means any guarantee or
    other pledge by the Secretary to pledge the full
    faith and credit of the United States to pay all
    of the principal and interest on any loan or
    other debt obligation entered into by a holder of
    a certificate of public convenience and necessity

21
24
Federal Loan Guarantee is not a sure thing
Energy Policy Act of 2003 Title III Oil and
Gas Subtitle D - Alaska Natural Gas
Pipeline Section 386 Federal Loan Guarantees
Federal Loan Guarantee
Some of the Key Variations
  • Federal Loan Guarantees range from 10 billion to
    18 billion
  • House version is silent regarding guarantee
  • H.R. 6, as passed by the Senate also provides
    that the applications for the project are filed
    prior to 18 months after the date of enactment

22
25
The Pipeline may be able to achieve further debt
service reductions by utilizing a Federal Loan
Guarantee
Energy Policy Act of 2003 Title III Oil and
Gas Subtitle D - Alaska Natural Gas
Pipeline Section 386 Federal Loan Guarantees
Federal Loan Guarantee
Potential Benefits of the Federal Loan Guarantee
  • Given that all scenarios call for a debt to
    equity ratio of less than 80, the Pipeline may
    be able to issue all of its debt with a Federal
    Loan Guarantee
  • Due to the strong credit of the U.S. Government,
    potential purchasers of bonds will be willing to
    accept significantly lower yields on federally
    guaranteed debt, thus considerably lowering the
    interest component of debt service

23
26
Value of Federal Loan Guarantee on taxable debt
  • Federal Loan Guarantee could reduce taxable
    yields by 35 to 50 basis points depending on the
    length of the maturity.

Federal Loan Guarantee
Assuming an A rating
Base Case Scenario
24
27
Value of Federal Loan Guarantee on tax-exempt debt
  • Federal Loan Guarantee could reduce taxable
    yields by approximately 50 basis points.

Federal Loan Guarantee
Assuming an A rating
Base Case Scenario
25
Write a Comment
User Comments (0)
About PowerShow.com