Latham Advises the Republic of Indonesia on Financing of Train 3 of the Tangguh LNG Project

A landmark signing in Indonesia sees the first domestic financing and the first majority domestic offtake of the first upstream LNG project in Indonesia since 2007.

August 30, 2016

Latham & Watkins represented the Republic of Indonesia through its oil and gas upstream regulatory agency, Satuan Kerja Khusus Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi (SKKMIGAS), on the financing of Train 3 ("Project") at the expansion of the existing Tangguh liquefied natural gas ("LNG") plant in West Papua, Indonesia. The expansion of the Tangguh LNG plant is the first upstream LNG project in Indonesia since 2007, and the only project to reach Final Investment Decision ("FID") in the last six months globally. The project includes the construction of an onshore LNG process Train with liquefaction capacity of 3.8 million tons per annum, two offshore platforms, 13 new production wells, a new LNG jetty and supporting infrastructure. This will bring the Tangguh LNG plant to a total capacity of 11.4 million tons per annum (mtpa).

The project is operated by BP Berau Ltd on behalf of the other production sharing contract partners. BP Berau Ltd and its affiliates in Indonesia hold a 37.16% stake in the project, followed by MI Berau B.V. (16.30%), CNOOC Muturi Ltd. (13.90%), Nippon Oil Exploration (Berau) Ltd. (12.23%), KG Berau Petroleum Ltd and KG Wiriagar Petroleum Ltd (10.00%), Indonesia Natural Gas Resources Muturi Inc. (7.35%), and Talisman Wiriagar Overseas Ltd. (3.06%).

The Project, worth over US$8 billion, is the first in Indonesia to be financed by both international and domestic banks. The total debt amount is US$3.75 billion, split between JBIC direct loan (US$1.2 billion), ADB loan (US$400 million)[1], international commercial bank tranche (US$2.045 billion) and an Indonesian bank tranche (US$100 million). The international banks include four Japanese banks (BTMU, Mizuho Bank, SMBC, Shinsei Bank); three Singapore banks (DBS, OCBC, UOB); two Chinese banks (Bank of China, China Construction Bank); two French banks (BNP Paribas, Credit Agricole), and KDB and KfW. The domestic banks includes four of the state-owned Indonesian banks (BNI, BRI, BTN, Bank Mandiri).

The development of Train 3 of the Tangguh expansion project is vital to the growing energy demands in Indonesia, with 75% of the Train 3 annual LNG production being sold to PT PLN (Persero), the Indonesian state-owned electricity company. The remaining LNG is contracted to Kansai Electric Power Company, Japan.

The Latham team was led by partner Clarinda Tjia-Dharmadi in Singapore, with associates Tim Fourteau, Brett Lovellette and Andrew Mamo.

Tjia-Dharmadi, Global Co-chair of Latham & Watkins’ Energy - Power Industry Group, commented: "Latham is honored to once again represent the Republic of Indonesia on another landmark oil and gas development, the first upstream LNG project to successfully reach closure in Indonesia since 2007. This project is a tremendous economic boost to the Papua Barat Province and Indonesia, and reinforces the Indonesian government's commitment to increase the country's energy supply and its support of economic growth in the LNG sector."

The Tangguh LNG facility is located in Teluk Bintuni Regency (West Papua). It currently consists of offshore gas production facilities that supply two 3.8 mtpa liquefaction Trains. Train 3 is expected to come on stream in July 2020.

[1] Both the JBIC and ADB tranches will be signed before the end of 2016.

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