Seminar Presentation
6th March 2018
1 Important information and disclaimer
This presentation (the “Presentation”) contains financial information (the “Financial Information”), operational, legal and other information concerning Tulip Oil Netherlands Offshore B.V. (the “Company”) and its business. The Presentation has been prepared by or at the direction of the Company. This Presentation is for information purposes only and does not constitute a prospectus or offering memorandum or an offer, solicitation or invitation to underwrite, tender or otherwise acquire or invest in or take any action in respect of any securities. This Presentation is not intended to provide the basis for any credit or any other third party evaluation of the Company, any securities previously issued by it, any securities which may be issued by it or any subsidiaries in the future or any related transactions and should not be considered as a recommendation that any investor should subscribe for or purchase or invest in any such securities. No reliance may be or should be placed by any person for any purposes whatsoever on the information contained in this Presentation or any other material discussed at the Presentation, or on its completeness, accuracy or fairness. By attending a meeting where this Presentation is made, or by receiving this Presentation, you agree to be bound by the terms, conditions and limitations set out herein. Neither the Company nor any of its direct or indirect shareholders nor any such company’s directors, officers, employees, advisors or representatives (collectively the “Representatives”) makes any representation or warranty of any sort as to the accuracy or completeness of the information contained in this Presentation or in any other model or information made available in connection with this Presentation or the reasonableness of the assumptions on which any such information is based. No person shall have any right of action against the Company, its Representatives or any other person in relation to the accuracy or completeness of any such information. The information contained in this Presentation is subject to amendment and/or completion without notice and such amendments may be material. The merits or suitability of investing in the Company or any securities previously issued or issued in the future by the Company or any future subsidiaries for any investor’s particular situation must be independently determined by such investor. Any such determination should involve, inter alia, an assessment of the legal, tax, accounting, regulatory, financial, credit, foreign exchange and other related aspects of the transaction in question. The contents of this Presentation are not to be construed as legal, business, investment or tax advice. Each recipient should consult with its own legal, business, investment and tax adviser as to legal, business, investment and tax advice. This Presentation is strictly confidential and is being submitted to selected recipients only and has not been prepared with a view to public disclosure under applicable securities laws or otherwise. It may not be reproduced (in whole or in part), distributed or transmitted to any other person without the prior written consent of the Company. No person shall be treated as a client of any of the Company’s advisers or be entitled to the protections afforded to such clients, solely by virtue of having received this Presentation. Neither this Presentation, nor any copy of it or the information or materials contained herein, are intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation or which would require any registration or licensing within such jurisdiction. Any person coming into possession of this Presentation should inform themselves about and observe any such restrictions. Neither this Presentation nor any part thereof is intended for general publication, release or distribution in the United States. Any failure to comply with these restrictions may constitute a violation of the laws of any such jurisdiction. Neither the Company nor its Representatives shall have any liability (in negligence or otherwise) for any loss howsoever arising from any use of this Presentation or its contents or otherwise arising in connection with the Presentation. The information contained in this Presentation may include results of analyses from a quantitative model that may represent potential future events that may or may not be realized, and is not a complete analysis of every material fact relating to the Company or its business. This Presentation contains projections and forward looking statements. The words “believe”, “expect”, “could”, “may”, “anticipate”, “intend” and “plan” and similar expressions identify forward-looking statements. All statements other than statements of historical facts included in the Presentation, including, without limitation, those regarding the Financial Information, the Company’s financial position, potential business strategy, potential plans and potential objectives, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the Company’s actual results, performance, achievements and value to be materially different from any future results, performance, achievements or values expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which the Company will operate in the future. No warranty or representation is given by the Company or any of its Representatives as to the reasonableness of these assumptions. Further, certain forward-looking statements are based upon assumptions of future events that may not prove to be accurate. The forward-looking statements in the Financial Information speak only as at the date of the Financial Information and the Company assumes no obligation to update or provide any additional information in relation to such forward-looking statements. Nothing in this Presentation is, or should be construed as, a profit forecast. By attending or receiving this Presentation, you acknowledge that you will be solely responsible for forming your own view of the potential future performance of the Company. Any investment in the Company involves inherent risks and is suitable only for investors who understand the risks associated with this type of investment and who can afford a loss of all or part of the investment. Investors should carefully review the risk factors set out in the following slides before making any investment decision. There may have been changes in matters which affect the Company subsequent to the date of this Presentation. Unless otherwise stated, the information contained in this Presentation is provided as at the date of this Presentation and is subject to change without notice. None of the Company or any of its advisers undertakes any obligation to update the information provided in the Financial information or any other information in the Presentation, to provide the recipient with any additional information, or to correct any inaccuracies that may become apparent in any information provided. This Presentation is governed by Norwegian law. Any dispute arising in respect of this Presentation is subject to the exclusive jurisdiction of Norway with Oslo city court as exclusive venue.
2 Summary of risk factors An investment in the Company, or in any present or future securities issued by the Company, involves a high degree of financial risk and is suitable only for investors who understand the risks associated with this type of investment and who can afford a loss of all or part of an investment. The risk factors below are a non-exhaustive summary of the risk factors included in this Presentation, and no investor should make any investment decision without having reviewed and understood the risk factors associated with investing in the Company. The order of appearance is not intended to indicate importance or likelihood of occurrence.
RISKS RELATED TO THE ISSUER'S BUSINESS • The Issuer's production and revenues is expected to come from one field • Development projects are associated with risks relating to delays and costs. • Marketing and sale of hydrocarbons • The oil and gas industry is subject to commodity price fluctuations, which may adversely impact the Issuer's results of operations, financial condition and prospects • Recovery, reserve and resource estimates may prove inaccurate and reporting standards may differ from the standards of other jurisdictions • The Issuer's financial performance depends on its ability to locate and develop oil and gas reserves, to produce these reserves commercially and get paid for them • Competition • Alternatives to and changing demand for petroleum products • Cost of new technologies • The Issuer may be unable to obtain or renew required concessions, licence, permits and other authorisations (together, "Licences") or such Licences may be suspended, terminated or revoked prior to their expiry • A significant change in Dutch laws and regulations for the petroleum industry, particularly any unfavorable amendments to applicable tax laws, may have an adverse effect on the Issuer's business and financial condition • Activities in the oil and gas sectors can be dangerous and may be subject to interruption • The Issuer's insurance and indemnities may not adequately cover all risks or expenses • The Issuer's operations are subject to general and specific regulations and restrictions governing workplace health and safety requirements, environmental requirements, social impacts, and other laws and regulations • The Issuer's environmental liabilities could be significant • The Issuer is dependent on its executive management and Board of Directors • The Issuer relies on the services of third parties to implement its growth and development • The Issuer cannot accurately predict its future decommissioning liabilities • Risks associated with legal disputes • Political uncertainty
3 Summary of risk factors RISKS RELATED TO THE BOND ISSUE • It may be difficult to realize the value of the collateral securing the Bonds • The security interests in the Collateral will be granted to the Bond Trustee rather than directly to the Bondholders. The ability of the Bond Trustee to enforce certain of the Collateral may be restricted by local law • The Issuer and the Guarantors will have control over the Collateral • The Bonds and the Bonds' guarantees will be subject to certain limitations on enforcement and may be limited by applicable laws or subject to certain defences that may limit its validity and enforceability • Enforcing your rights as a holder of the Bonds or under the guarantees or security across multiple jurisdictions may prove difficult • The Bonds may not be a suitable investment for all investors • The Issuer might be unable to make scheduled payments on the Bonds, and to repay the Bonds at maturity • A trading market for the Bonds may not develop and the market price of the Bonds may be volatile • The value of the Collateral securing the Bonds might not be sufficient to enable the Issuer to perform its obligations under the Bonds • There is a risk that security and perfection over certain collateral will not be in place by the issue date of the Bonds • There is a risk that the Issuer is not able to obtain all of the conditions precedent in time, which may lead to a mandatory prepayment of the Bonds • Optional redemption by the Issuer • The Issuer may not be able to obtain the funds required to repurchase the Bonds upon a change of control • Modification of the terms and conditions governing the Bonds • Following the issuance of the Bonds, the Issuer will have substantial indebtedness • Despite the Group's current indebtedness and restrictive covenants, the Issuer and the Guarantors will still be able to incur significant additional amounts of debt, which could lead to or exacerbate risks associated with a substantial leverage • The Bond terms and conditions will contain covenants that impose restrictions on the Issuer and the Guarantors • Exchange rate risks and exchange controls • Investment in the Bonds involves the risk that subsequent changes in market interest rates may adversely affect the value of the Bonds. • The transferability of the Bonds may be limited under applicable securities laws. • Prospective investors may not be able to recover in civil proceedings for U.S. securities laws violations • Netherlands insolvency may not be as favourable to you as United States or other insolvency laws • Legal investment considerations may restrict certain investments • The Issuer and the Guarantors are jointly and severally liable for Dutch corporate income tax liabilities of the Group
4 Tulip Oil in brief
. Tulip Oil Holding B.V. (“Tulip Oil” or “TOH”, and together with it Subsidiaries, the “Group”) is a private company owned by funds advised by Global Natural Resource Investments (“GNRI”) and management . The Group currently owns both offshore and onshore Netherlands gas assets as well as onshore German oil business . The offshore Netherlands gas assets comprise, among others, the Q07-Q10a Blocks. These blocks contain the Q10A field and surrounding opportunities. . The Group’s main asset is the Q10A field. The Q10A discovery was made in July 2015 and was recognised at the time as the largest discovery in the Dutch North Sea in the last 15 years1
5 1) Wood Mackenzie TOH Board Expanded
Non Executive Chairman Non Executive Director Non Executive Director Non Executive Director Non Executive Director
Imad Mohsen – Chief Executive Officer & Executive Board Member
6 Management team
Imad Mohsen – Chief Executive Officer
. 21 years experience in the E&P Industry
. COO of Shell’s Egypt business (Bapetco) – 1,500 staff, 100k boepd, 60 wells/year
. Shell’s GOM development manager subsea – USD 1bn Capex per year
. Served as personal Business Advisor to the CEO of Royal Dutch Shell Group of Companies
. 17 years at Shell in the Netherlands, Nigeria, Germany, the US and Egypt
. Technical expertise covers field development, facility and process engineering, operations and project management Martin Bell – Chief Financial Officer
. 17 years experience in the E&P Industry, including most recently as Shell’s Strategy Manager for early development of Light Tight Oil projects worldwide
. Extensive commercial management and financial experience across new business development and projects
. Drilling, completion, production and development expertise from operations
. 15 years at Shell in the Netherlands, Russia, Middle East, South Africa, Canada and the US
. Technical expertise covers petroleum engineering and production technology
7 Supported by experienced private equity sponsor
GNRI overview Investment strategy
. GNRI was formed in 2015 by a management . GNRI invest by identifying and partnering with buyout of the former Barclays Natural Resource ‘best-in-class’ management teams using the Investments (“BNRI”) private equity business from extensive GNRI network of contacts and Barclays Bank PLC utilizing the line-of-equity approach . The focus of GNRI has been consistent since formation in 2006, namely private equity investing in oil and gas, upstream mining, plus associated services and power Current portfolio companies . Funds advised by GNRI have committed more than USD 3bn of equity
. Since inception, funds advised by GNRI have “backed” and invested with more than 20 management teams and currently has a portfolio of 10 companies
8 Operational model – Ambitious with feet on the ground
. Has to be Safe Safe . Use sound engineering judgment of a small operations number of high quality people. Close integration between engineers/subsurface and economics. . Use simple concepts, minimise engineering Aligned and execution risk. Rely on modern and proven high Aligned high Success quality technology. quality Contractors personnel . Share the objectives and create commercial alignment with carefully selected Contractors. . Make use of ullage in work portfolio of Contractors. Solid . Short decision lines during financing design/procurement/contracting and construction . Always have more cash on hand than required
9 Key Differentiators : Put today’s technology in use
3D Seismic Fast-track Modular Oil Production Facilities
. Proven technology used (for the first time!) on Tulip’s . Tulip in co-operation with Siemens has developed a cost efficient “plug & acreage in Netherlands and Germany play” Modular Production Facilities . Unmanned modular model allows for very low CAPEX and OPEX, while retaining a standardised approach . Target installation for the latest model in one week, with no concrete foundations
New modern seismic allowed us to get an excellent picture of the reservoir
10 Success – Q10-A field discovery in 2015
Development is financed through a Nordic bond issue.
11 Confidential – Not for further distribution without the explicit written permission of Tulip Oil Holding B.V. Transaction overview - EUR 87m senior secured bond issue for Tulip Oil Netherlands Offshore B.V.
Introduction to Tulip Oil Summary of key terms
Tulip Oil Holding B.V. is a private company owned by Issuer Tulip Oil Netherlands Offshore B.V. (“TONO”) funds advised by Global Natural Resource Investments Guarantors Tulip Oil Netherlands B.V. (“TON”); and Tulip Oil Holding B.V. (“TOH”) (“GNRI”) and management Issue volume EUR 87,000,000 Issue price 98% of par value The Group owns offshore and onshore Netherlands gas Tenor 5 years assets as well as an onshore German oil business Coupon 3m EURIBOR (floor of zero) + 8.5% p.a., quarterly interest payments The offshore Netherlands assets include the Q10A field, Status Secured in certain assets of the Issuer and the Guarantors which was discovered in July 2015 and recognised at the Purpose Net proceed to be used to (i) fund the Debt Service Retention Account with an amount equal time as the largest discovery in the Dutch North Sea in to the aggregate of 18 months of Coupon Rate payments; the last 15 years (ii) fund Distribution Transactions in amounts up to EUR 10 million; (iii) fund the Project (Q10A field development); and (iv) towards the Issuer's general corporate purposes . Net 2P reserves of 175bcf (32 mmboe) * Call options Make-whole the first 30 months, thereafter callable @ 105% / 104% / First gas from Q10A is expected in Q2 2019 103% / 102% / 101% after 30 / 36 / 42 / 48 / 54 months, respectively Amortisation Bullet . Payback period of c. 9 months from first gas Financial covenants Minimum Liquidity: EUR 2,000,000 prior to (and including) 6 months after the First Gas Date and EUR 5,000,000 thereafter. Equity Ratio: from First Compliance Date and on each Calculation Date thereafter, no less than 30%. Maximum Leverage Ratio: from First ComplianceDate and on each Calculation Date thereafter, no more than 2:1. Minimum Interest Coverage Ratio: from First Compliance Date and on each Calculation Date thereafter, no less than 6:1
Undertakings General undertakings pursuant to Norwegian bond market standards and special undertakings customary for this kind of financing Change of control Bondholders’ put option at 101% of par value Sole Manager ABG Sundal Collier ASA
12 1) As per 2016 SGS Reserves Report 2017 Unaudited P&L for TONO
13 2017 Unaudited Balance Sheet for TONO
14 Successfully marketing the first Nordic E&P bond since June 2015
MoreIssued than volume NOK by47bn E&P raised companies for E&P in the companies Nordic High inYield the Market Nordic and market oil price since (Brent) 2006 Issued volume (NOKbn) Spread (basis points) ABGSC HY 12 Index down 1,800 11.1 Issued volume 786bps since peak Feb 2016 1,600 10 ABGSC HY index oil
ABGSC HY index 1,400 7.9 8 Tulip roadshow 1,200
6 1,000
4.4 800 4 2.9 600
2 400 0.7 0.8 0.4 0 200 2012 2013 2014 2015 2016 2017 2018 YTD
Restructuring situations
15 Source: Bloomberg, Stamdata Successfully marketing the first Nordic E&P bond since June 2015
Extensive pre-sound and credit analyst support ahead of formal launch
Key marketing process highlights
18 Sept 2017 . Pre-sound launched 18 September . Spent two weeks meeting 25 investors (nine effective days)
. Presenting the deal globally with particular focus on Oslo, Bergen, Stockholm, Helsinki, Copenhagen, London, Geneva, Singapore and Hong Kong ~2w
sound . Majority of meetings in person and 1-on-1, in addition to several conference -
e calls and one group meeting Pr . ABGSC’s credit analyst met with 10 key investors prior to management meetings and 5 investors that did not meet management during pre-sound
3 Oct . Extensive follow-up work, including approximately 20 in-depth calls 2017 Book covered ~75% with indicated orders before decision taken to launch 4 Oct the transaction 2017 . Deal launched 4 October . Broad distribution of transaction documents and credit research product Europe UK 6% Nordics ~1w . Spent one week meeting seven additional investors (two effective days) 9% 68%
adshow / / adshow Demand okbuilding
o . Decision to suspend roadshow and close the transaction early taken 10 o R October, providing one week from launch to close of the transaction split by Asia B 17% geography . The book was substantially oversubscribed, receiving orders from 45 11 Oct 2017 . investors from the Nordics, UK, Continental Europe and Asia
16 Low risk project development and operations utilising “off-the- shelf” solutions
Near shore and shallow water location Low cost facilities and operations
P/6-NW Wintershall Wintershall P06 Q01-04 Q/4-A P/6 Q/4 Q/5A Aasta P/6-A Q/4-B (Q/4)
Q/4-B (Q/5D) Hansten P/6-D P/6-S Netherlands Q07-Q10a Blocks is 50m in
Q/8B diameter P/6 – P/9-A and
Q07-Q10a P/12 Q/8 P/9C (PS) Blocks West 200m P/9a (Horizon) tall. Petrogas Q07A Legend P08-09 Wijk An Zee Terminal Velsen-Noord Q10A Oil Discoveries Terminal Gas Discoveries Q/10 water P/12 P/123 Oil Infrastructure P/6 Q/11 depth is Gas Infrastructure P/12SW Q07-Q10a Blocks Wintershall Engie just 25m P/12-14 Exploration Licence P12 Q13a Applications Source: Statoil Wells to be drilled and completed on an unmanned, off- the-shelf structure remotely operated from shore Q10 Platform located 20km from the coast Only water separation will be done on the platform with all Water depth at 24m processing taking place at the P15d Platform greatly Export route to P15d Platform 43kms simplifying the platform Benign metocean conditions (calm seas) Significant cost reduction by elimination of helipad requirement given proximity to shore
17 The Q10 Gas Development Project Update
Q10A Platform
Ijmuiden Q10A –P15D Pipeline Route
P15D Platform
. Funding was secured through the raising of a senior secured EUR 87M bond.
. The P15 Offshore export route was chosen as it was cheaper, simpler and with a much lower execution risk than initially envisaged new treatment plant onshore.
. The Group reached the final investment decision (“FID”) in Jan 2018 with contracts awarded and long-lead procurement underway.
. EPCI Contracts have been awarded with Heerema Fabrication Group for the Platform and Allseas for the pipeline and Paragon for the drilling. . First gas from Q10A is expected in Q2 2019
18 1) Wood Mackenzie Q10 Pipeline Installation Awarded to Allseas as EPCI
Allseas’ Experience Record . Founded in 1985 by Edward Heerema and privately owned . World-leading offshore contractor for pipeline installation, heavy lift and subsea construction . At forefront of cutting-edge technologies for over 30 years, pushing boundaries to deliver state-of-the-art solutions . Operate worldwide with a fleet of specialised heavy-lift, pipelay and support vessels designed and developed in- house . Executed around 300 projects, installed more than 21,000 km of pipeline with “S-lay” method and trenched over 4,000 km of pipeline . “Lorelay” revolutionised offshore pipelaying as world’s first pipelay vessel to operate on full dynamic positioning . “Pioneering Spirit” largest and most advanced pipelay vessel in the world . Puts safety and the environment first – excellent track record
Lorelay -- Pipeline Installation Vessel 19 Q-10-A Platform Construction Awarded to Heerema Fabrication Group as EPCI
Heerema’s Experience Record . World Class Contractor for Platform Construction . Extensive experience in both jackets and topside fabrication
Culzean CPF & ULQ Oseberg Vestflanken Culzean CPF, ULQ & WHP Jackets Galloper HVAC 2 Unmanned WHP Jackets - Maersk Oil North Maersk Oil North Sea Substation Statoil Petroleum AS Sea UK Ltd. UK Ltd. Petrofac Facilities Mngt Ltd.
Heerema Fabrication Group | Yard Locations
2017 2017-2016 2017 2017 EPCI of an Unmanned Construction of a 8,000 t Procurement, Wellhead Platform CPF Construction, Construction of a based on FEED by Jacket, a 6,800t ULQ Loadout and Sea HFG Jacket and a twisted base 8,000 t CPF Jacket fastening Engineering WHP Jacket of 6,650 t and and 6,800t ULQ Jacket of a 1,600 t Topsides, Topside 900 t and Access Deck and Access a 1,200 t Jacket and Jacket 4,400 t Ways of 450 t 600 t Piles
20 TAQA Europe: P15 Infrastructure
. TAQA’s P15 infrastructure is situated 35 km north west of Hoek of Holland, in 26 m of water. It consists of oil production (Rijn Field) and natural gas production facilities, including a central complex, several satellite production platforms and sub-sea completions. Condensate, oil and natural gas are transported to shore by pipelines.
. The P15 platforms are an important hub for third party treatment and processing of oil and gas. Fifteen fields in the Dutch North Sea tie-in to P15 to separate, treat and export oil via a 10” pipeline to the BP refinery in the port of Rotterdam or export gas via a 26” pipeline to the Dutch national grid.
. The facility is owned by TAQA, Dana, Wintershall, Dyas and EBN, and is operated by TAQA. The facility has a local control room and a routine crew of 22 personnel. Accommodation is available for up to 56 people.
. P15-D, the gas processing platform, is the largest of the three main platforms. It weighs 9515 tonnes, has six decks, and measures 55 x 37m. The platform’s design gas throughput is 13.5 MM Nm3/d; the 2017 throughput has been 1.3 MM Nm3/d.
21 01-03-2018 NL Offshore Asset 1 Q10A project schedule
2017 2018 2019 Q10A Development Timeline Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Production licence awarded
Final Investment Decision
Engineering / procurement on- and offshore installation
Contract awards
Procurement
Fabrication
Offshore installation/construction
Hook up first well and drill second well
Commissioning and start-up
First production
22 The Q10A discovery in context
Netherlands offshore gas discoveries since 2002, (>35 bcf)
60 Legend:
Q10A E/18-A, 125Bcf F/16-P, 35Bcf Other NL 50 Discoveries Medway, 64Bcf L/5a-Sierra, 129Bcf G/16a-B/C, 179Bcf
G/16a-D, 46Bcf 40 Van Nes, 45Bcf K/18-Golf, 217Bcf 300bcf Q10A, 292Bcf(1) L/6-B, 49Bcf
G/14-C, 46Bcf (m) 30 L/10-N, 36Bcf L/9-FK, 112Bcf
K/15-FP, 49Bcf Water Depth Depth Water 20 150bcf K/12-B9 (K12), 47Bcf K/15-FO, 46Bcf Q/1-D, 59Bcf
Ameland Westgat 20/30, 45Bcf 10
Q/16-Maas, 35Bcf 75bcf
-
(10) 2001 2002 2004 2005 2006 2008 2009 2010 2012 2013 2014 2016 2017 Discovery Date The list above includes all exploration successes in the Netherlands offshore of all major operators (Shell, Exxon, Wintershall, ONE, ENGIE, Total and TAQA among others)
23 1) Wood Mackenzie Q10A reserves: 289Bcf post economic cut-off DUTCH GAS MARKET PLAYERS
Dynamic corporate landscape in the Netherlands with large number of independent E&P’s
24 Q10A – Low cost and high margin field
Development Projects Cost Benchmarking1 Development Projects IRR2
Capex (Real): US$2.7/boe Opex (Real): US$3.1/boe - Q07A 86% More Attractive Q10A Byrding Ravn Lancaster Less Cheviot Area Attractive 10 Johan Sverdrup Tolmount Krafla Area Tolmount L/5a-D Lancaster A/15-A Krafla Area Johan Castberg Platypus Byrding Johan Sverdrup Culzean A/15-A Average: Cheviot Area 20 King Lear Area Adda Ravn US$22.2/boe Gina Krog Area Rembrandt Kraken Area Rembrandt Johan Castberg Rosebank Greater Catcher Martin Linge Unit Platypus Area 30 Kraken Area Stella King Lear Area ($/boe) Mariner Hejre Rosebank Average excluding Q10A: 15%
Greater Catcher Area Capex Capex 40 Morrone L/5a-D Adda Culzean Gina Krog Area Martin Linge Unit 50 Western Isles Project Morrone Harris Hejre Average: Mariner US$13.2/boe Stella 60 30 25 20 15 10 5 - - 15% 30% 45% 60% 75% 90% Opex (US$/boe) Post-tax IRR (%)
Source: Wood Mackenzie 2017; Note: Presented set includes Wood Mackenzie FID and probable projects in North Sea (UK, Norway, Netherlands) 25 1) Costs in real terms; 2) TTF: EUR 12.22/mwh in 2017, EUR 14.16/mwh in 2018, EUR 12.42/mwh in 2019, EUR 10.63/mwh in 2020 and EUR 17.80 LT (inflated at 2.0% onwards); Brent: USD 47.0/bbl in 2017, USD 47.0/bbl in 2018, USD 47.0/bbl in 2019 and USD 71.2/bbl LT (inflated at 2.0% onwards) Very Healthy Cashflow
Expected payback of Capex within c. 9 months after first gas1
26 CONCLUSION - Bond financing for highly profitable project is a win-win
. The Nordic-led bond market a very valuable source of financing for companies like Tulip, especially with the challenged balance sheet of many banks who although keen to offer RBL’s these come with heavy oversight bureaucracy.
. Good risk return for bondholders, with high yield and implicit hedge against inflation (euribor plus).
. There is now more awareness of the market thanks to successful issuers like ABG who pro-actively reach out to target companies.
. This “ear to the ground” approach helps both issuing company and investors to make informed decisions has proven invaluable.
27 Risk factors
An investment in the Company, or in any present or future securities issued by the Company, involves a high degree of financial risk and is suitable only for investors who understand the risks associated with this type of investment and who can afford a loss of all or part of an investment. . Any recipient of this Presentation should carefully consider all information contained herein, and no investor should make any investment decision without having reviewed and understood the risk factors associated with investing in the Company. . This section addresses both general risks associated with the industry in which the Company operates and the specific risks associated with its business. If any such risks were to materialize, the Company's business, results of operations, financial condition and/or prospects could be materially and adversely affected, which in turn could result in a decline in the value of the Company, or any present or future securities issued by the Company, and a loss of part or all of your investment. Further, this section describes certain risks relating to the "Tulip Oil Netherlands Offshore B.V. FRN 8.50% Senior Secured EUR 87,000,000 Callable Bond Issue 2017/2022" with ISIN NO001 0808231 (the "Bonds"),issued by the Company (herein also referred to as the "Issuer"), which could also adversely impact the value of the Bonds.
The risks and uncertainties discussed below are some of the risks that the Company's management currently views as material. Additional risks and uncertainties (material and non-material), including risks that are not known to the Company at present, may also arise or become material in the future, which could lead to a decline in the value of the Company or the Bonds and a loss of part or all of your investment. The following risk factors are not listed in any particular order of priority as to significance or probability.
While the Group produces hydrocarbons in both the Netherlands and Germany, the Company only holds the Q07 and Q10a fields offshore the Netherlands (the "Fields") which are currently under development. Whereas the Company is not currently producing hydrocarbons, several of the risk factors described herein will relate to the development and construction of the Fields, while other risk factors are only relevant to the future business operations conducted after commencement of production. Moreover, several of the risk factors described herein are also applicable to the business of the companies having granted guarantees under the terms of the Bonds (the "Guarantors").
RISKS RELATED TO THE ISSUER'S BUSINESS
The Issuer's production and revenues is expected to come from one field
The Issuer's business will in the first instance solely be based on the Fields, for which the anticipated production commencement is the end of Q1 2019. The Issuer's future revenues are, as a consequence, dependent on the Issuer's ability to successfully execute the development and construction of the Fields.
The Issuer's future production of oil and gas will be concentrated to a limited number of wells in the Fields. Future production or the hydrocarbon reserves in the Fields may not be in line with the Issuer's projections, and any disruption of production at the Fields will have a substantial negative impact on the Issuer's total production and revenues. If mechanical problems, weather conditions, (under)ground conditions or other events curtail a substantial portion of the Issuer's production, it could have a material adverse effect on the Issuer's business, prospects, financial condition or results of operations.
Development projects are associated with risks relating to delays and costs
Development projects, including the development of the Fields, involve advanced engineering work, extensive procurement activities and complex construction work to be carried out under various contract packages at different locations offshore and onshore. Furthermore, the Issuer must carry out drilling operations, install, test and commission offshore and onshore installations and obtain governmental approval to take them into use, prior to commencement of production. The complexity of the development of the Fields makes them sensitive to various circumstances and weather conditions, which may affect the planned progress or sequence of the various activities, as this may result in delays or costs increases.
In this regard, it must be observed that the Issuer has only partly initiated the above mentioned works streams, and that no agreements have been entered into with contractors or suppliers for the development, construction and implementation of installations for the Fields at the date of this presentation. Neither has the Issuer entered into agreements for the connection of the Fields to any third party facilities. This implies that the choice of reliable contractors, the terms and quality of agreements, relating costs, time schedule and the prudent handling of interfaces between different works streams are currently not certain.
The current or future projected target dates for production start of the development of the Fields may be delayed and significant cost overruns may incur due to delays, changes in any part of the development project, weather conditions, technical difficulties, project mismanagement, equipment failure, natural disasters, political, economic, taxation, legal, regulatory or social uncertainties, piracy, terrorism or protests, which again may materially adversely affect the Issuer's future business, operating results, financial condition and cash flow. Ultimately, there are risks that the rights granted under the Issuer's licences or agreements with the government may be forfeited and the Issuer may be liable to pay large penalty sums, which could jeopardize its ability to continue operations.
Finally, it is noted that the Issuer is dependent on cooperation with the state participant, EBN B.V., in the development, construction and operation of the Fields, but no agreement has yet been entered into with EBN B.V. to this effect. Although such agreement is normally entered into in accordance with a standard form, the Issuer does not control the final terms of such agreement, which may ultimately affect the Issuer's control of the development of the Fields and the work streams, time frame and costs relating thereto. Further, EBN B.V.'s failure to comply with its obligations under any cooperation agreement may adversely affect the Issuer and the development and operation of the Fields. 28 Risk factors
Marketing and sale of hydrocarbons
The marketability and price of hydrocarbons produced by the Issuer will be affected by numerous factors beyond its control. The ability of the Issuer to market hydrocarbons may for instance depend upon its ability to reserve capacity in pipelines or ships for transportation of hydrocarbons to commercial markets and to processing facilities, as well as the operational functioning of such facilities. Although the Issuer has been in discussions with third parties in respect of the potential connection of the Fields through pipelines to third party facilities, no agreements have been entered into at the date of this presentation. The Issuer has neither entered into any agreements for the sale or off-take of gas at this point in time. There is no guarantee that the terms of such potential connection agreements will be satisfactory to execute the development of the Fields. If the Issuer does not successfully market and sell hydrocarbons to prospective buyers, the Issuer's it could have a material adverse effect on the Issuer's a material adverse effect on the business, prospects, financial condition or results of operations.
The oil and gas industry is subject to commodity price fluctuations, which may adversely impact the Issuer's results of operations, financial condition and prospects
The Issuer's revenue and earnings will depend upon prevailing local and international oil and gas prices. Any material decline in oil and gas prices, to the extent not addressed by meaningful hedging arrangements, could result in a reduction of the Issuer's net production revenue. Oil and gas are globally traded and, as a result, the Issuer, in common with its local and international competitors, is unable to control the prices it receives for its oil and gas. Historically, oil and gas prices have been volatile and subject to wide fluctuations for many reasons, including but not limited to:
(i) global and regional supply and demand, and expectations regarding future supply and demand for oil and gas;
(ii) availability of pipelines, tanker ships and processing equipment; proximity to, and the capacity and cost of, transportation; petroleum refining capacity;
(iii) price, availability and government subsidies of alternative fuels; price and availability of new technologies; the ability of the members of the Organisation of the Petroleum Exporting Countries (OPEC) and other oil-producing nations to set and maintain specified levels of production and prices;
(iv) political, economic and military developments in producing regions, particularly the Middle East, Russia, Africa and Central and South America and domestic and foreign governmental regulations and actions, including export restrictions, taxes, repatriations and nationalisation;
(v) global and regional economic conditions; weather conditions and natural disasters; and
(vi) terrorism or the threat of terrorism, which may affect supply, transportation or demand for oil and gas and refined petroleum products.
It is impossible to predict accurately future oil and gas price movements, and oil and gas prices may not remain at their current levels
Recovery, reserve and resource estimates may prove inaccurate and reporting standards may differ from the standards of other jurisdictions
Estimates of economically recoverable oil and gas reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as geological projections of reserves and underground conditions, historical production, production rates, ultimate reserve recovery, timing and amount of capital expenditures, marketability of oil and gas, oil and gas quality, transportation tariffs and capacity, royalty and taxation rates, assumed effects of regulation by governmental agencies and future operating costs, all of which may vary from actual results. All such estimates are, to some degree, speculative, and classifications of reserves are only attempts to define the degree of speculation involved. For those reasons, estimates of the economically recoverable oil and gas reserves attributable to any particular group of properties, classification of such reserves based on risk of recovery and estimates of future net revenues expected therefrom prepared by different engineers, or by the same engineers at different times, may vary. The Issuer's actual production, revenues and development and operating expenditures with respect to its reserves will vary from estimates thereof, and such variations could be material.
If the actual reserves or resources of the Issuer are less than the current estimates or of lesser quality than expected, the Issuer may be unable to recover and produce the estimated levels or quality of oil or gas and, as a result, the Issuer may not recover its initial outlay of capital expenditures and operating costs of any such operation and there may be a material adverse effect on the business, prospects, financial condition or results of operations of the Issuer.
29 Risk factors, cont’d
The Issuer's financial performance depends on its ability to locate and develop oil and gas reserves, to produce these reserves commercially and get paid for them
Oil and gas exploration and production is capital intensive, inherently uncertain in its outcome and involves a high degree of risk which even a combination of experience, knowledge and careful evaluation may not be able to overcome. The Issuer's existing and future oil and gas projects may involve unprofitable efforts, either from dry wells or from wells that are productive but do not produce sufficient net revenues to return a profit after development, operating and other costs.
Completion of a well does not guarantee a profit on the investment or recovery of the costs associated with that well. In addition, drilling hazards or environmental damage could significantly affect operating costs, and production from successful wells may be adversely affected by conditions including delays in obtaining governmental approvals or consents, shut-ins of connected wells resulting from extreme weather conditions, natural disasters, difficulties arising from environmental or other challenges, equipment or services shortages or failures, insufficient storage or transportation capacity or adverse geological conditions, procurement delays or difficulties arising from the political, environmental and other conditions in the areas where the hydrocarbons are located or through areas which the Issuer's products are transported, and those may also make it uneconomical to develop the hydrocarbons.
The Issuer is reliant on its completion of the development of the Fields to achieve its projected production levels. In particular, there is a need to ensure the project (including the delivery by contractors and suppliers) is managed on time and within budget, using efficient technologies to achieve the required specifications. Oil and gas development projects are generally unpredictable and subject to substantial risk and uncertainties and may result in substantial cost overruns and or delays.
Production delays and declines, whether or not as a result of the foregoing conditions, may result in lower revenue or cash flows from operating activities until such time, if at all, that the delay or decline is cured or arrested. In the event that such cash flows are reduced in the future, the Issuer may be forced to scale back or delay discretionary capital expenditure, resulting in delays to, or the postponement of, the Issuer's planned production and development activities or making it uneconomical to develop Reserves and Contingent Resources, which could have a material adverse effect on its business, results of operations, financial condition or prospects.
Competition
The oil and natural gas industry is highly competitive. The Issuer's competitors for the exploration, development and production of hydrocarbons, and for capital to finance such activities include companies that have greater financial and personnel resources available to them than the Issuer.
The Issuer's ability to discover reserves, to participate in drilling opportunities and to identify and enter into commercial arrangements with customers will be dependent upon developing and maintaining close working relationships with its future industry partners, its ability to select and evaluate suitable drilling opportunities and to consummate transactions in a highly competitive environment.
Alternatives to and changing demand for petroleum products
Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and gas, and technological advances in fuel economy and energy generation devices could reduce the demand for hydrocarbons. The Issuer cannot predict the impact of changing demand for oil and gas products, and any major changes may have a material adverse effect on the Issuer's business, financial condition and results of operations.
Cost of new technologies
The oil and gas industry is characterized by rapid and significant technological advancements and introductions of new products and services utilizing new technologies. Other oil and natural gas companies may have greater financial, technical and personnel resources that allow them to enjoy technological advantages and may in the future allow them to implement new technologies before the Issuer. There can be no assurance that the Issuer will be able to respond to such competitive pressures and implement such technologies on a timely basis or at an acceptable cost. One or more of the technologies currently utilized by the Issuer or implemented in the future may become obsolete. In such case and if the Issuer is otherwise unable to utilize the most advanced commercially available technology, the Issuer's business, financial condition and results of operations could be materially adversely affected.
30 Risk factors, cont’d
The Issuer may be unable to obtain or renew required concessions, licence, permits and other authorisations (together, "Licences") or such Licences may be suspended, terminated or revoked prior to their expiry
The Issuer conducts its exploration, development and production operations pursuant to a wide variety of Licences. The Issuer may not have all the Licenses needed for the development and operation of the Fields, and certain Licenses are subject to a process of public hearing and are therefore not final. There is no guarantee that all required Licenses will be granted in accordance with the applications, nor that they will be granted on conditions satisfactory to develop and operate the Fields. This implies a risk that the development of the Fields will not be carried out as planned, or that the costs and time frame of the development will differ from the current prognosis.
Such Licences contain conditions and requirements that must be met in order to maintain such Licences. A failure by the Issuer to meet the conditions and requirement under the Licences may cause the Licences to be revoked. Further, there can be no assurance that the relevant authorities will not significantly alter the conditions or area of, or that any third party will not challenge, the Licences held by the Issuer. There can further not be any assurance that an expired Licence will be renewed.
In addition, a Licence may be revoked, in whole or in part, by the competent authority in a limited number of circumstances set out in the Dutch Mining Act
The loss or revocation of, or failure to renew a Licence, in whole or in part, could cause a substantial loss of value and earnings for the Issuer and may have a material adverse effect on the business of the Issuer and value of the Bonds.
A significant change in Dutch laws and regulations for the petroleum industry, particularly any unfavorable amendments to applicable tax laws, may have an adverse effect on the Issuer's business and financial condition.
The Issuer's operations in the Netherlands are subject to a complex set of general and specific laws, regulations and restrictions with respect to planning (permit) requirements, environmental requirements, health and safety requirements and other laws and regulations. In addition, the Issuer is subject to the special Dutch tax regime for petroleum exploration and production operations, pursuant to which not only corporate income tax is levied, but also a state profit share (staatsaandeel in de winst) is due in respect of the income from such petroleum exploitation operations.
The (tax) laws and regulations of the Netherlands, including the tax regime applicable to petroleum exploration and production operations, may be subject to change, and there may be changes in interpretation and enforcement of such tax (tax) laws or regulations. As a result, the Issuer may face increased costs for complying with such laws and regulations. In addition, the Issuer may face increases in the amount of tax and/or state profit share payable if rates increase, or if tax laws or regulations are modified in an adverse manner, or if new tax laws or regulations are introduced by the competent authorities with or without retrospective effect. Any additional taxes or other sums that become due could have a material adverse effect on the Issuer's business, results of operations, cash flow and financial condition.
31 Risk factors, cont’d
Activities in the oil and gas sectors can be dangerous and may be subject to interruption
The Issuer's operations are subject to the significant hazards and risks inherent in the oil and gas sector in which it operates. These hazards and risks include:
(i) explosions and fires;
(ii) blowouts and other operational disruptions in relation to the Issuer's upstream exploration;
(iii) disruption to production operations;
(iv) leaks, spills, release of gas or soil contamination from site operations and storage;
(v) natural disasters;
(vi) ruptures and spills from crude and product carriers or storage tanks;
(vii) equipment break-downs and other mechanical or system failures;
(viii) improper installation or operation of equipment;
(ix) transportation accidents or disruption of deliveries of gas, crude oil, fuel, equipment and other supplies as well as capacity constraints in gas transportation pipelines;
(x) disruption of electricity, water and other utility services;
(xi) acts of political unrest, war or terrorism;
(xii) labour disputes; and
(xiii) community opposition activities.
In addition, the Issuer's operations are subject to all of the risks normally incidental to the drilling of oil and gas wells and the operation and development of oil and gas properties, including encountering unexpected formations or pressures, differential sticking of drilling assemblages, premature declines of reservoirs, equipment failures and other accidents (including accidents during equipment and rig moves), sour gas releases, uncontrollable flows of oil, natural gas or well fluids, adverse weather conditions, diseases impacting the health of personnel, pollution and other environmental risks.
The Issuer maintains insurance with respect to its operations in accordance with international oil field practice, including third party liability insurance up to specified limits, and it believes that its insurance programme is adequate to cover the consequences of the insurable hazards and risks to which the Issuer's operations are subject. However, the Issuer is unable to insure against all risks and may be exposed under certain circumstances to uninsurable hazards and risks which may result in financial liability, property damage, personal injury or other hazards or liability for the acts or omissions of sub- contractors, operators and joint venture partners. Although indemnities may have been provided by sub-contractors, operators and joint venture partners, such indemnities may be difficult to enforce given the financial positions of those giving the indemnities or due to the jurisdiction in which the Issuer seeks to enforce the indemnities, leaving the Issuer exposed to claims by third parties.
There is also no guarantee that the Issuer will be able to maintain adequate insurance in the future at rates the Issuer considers reasonable. Accordingly, the Issuer could incur substantial losses if an event which is not fully covered by insurance occurs, which would have a material adverse effect on the Issuer's business, results of operations and financial condition.
32 Risk factors, cont’d
The Issuer's operations are subject to general and specific regulations and restrictions governing workplace health and safety requirements, environmental requirements, social impacts, and other laws and regulations
The Issuer's primary operational safety risks are those inherent in the oil and gas industry such as fires, blowouts, explosions, equipment or system failures and transportation accidents, which may result in death or injury of staff.
Certain of the Issuer's operations may also create environmental risks in the form of spills, and the release of gas or soil contamination from site operations, recycling and waste disposal.
A health, safety, security or environmental incident could lead to the Issuer having to make material changes to its facilities or processes and pay compensation to any injured parties. There can be no assurance that the Issuer will not incur substantial financial obligations, which may lead to an adverse effect on the Issuer's business, financial condition and prospects.
The Issuer's environmental liabilities could be significant
Significant liability could be imposed on the Issuer for damages, clean-up costs or penalties in the event of certain discharges into the environment, environmental damage caused by previous owners of properties purchased or used by the Issuer, acts of sabotage by third parties or non-compliance with environmental laws or regulations by the Issuer. Such liabilities could have a material adverse effect on the Issuer. While the current legislation to which the Issuer is subject is limited, it is expected that additional environmental protection laws will be implemented in the future. It is not possible to predict what future environmental regulations will provide; however, these laws could impose additional obligations on the Issuer which may, for example, result in the Issuer incurring significant expenditures for the installation and operation of pollution control systems, as well as equipment for remedial measures and a penalty regime in the event of a breach of those laws, which could adversely affect the Issuer's business, financial condition and results of operations. It is also not possible to predict how environmental regulations will be applied or enforced in the future.
Furthermore, no assurance can be given that changes to environmental laws and regulations outside the Issuer's control will not result in a curtailment of production, a material increase in the cost of production, development or exploration activities, or increase compliance and remediation costs or otherwise adversely affect the Issuer's business, financial condition and results of operations or prospects.
The Issuer is dependent on its executive management and Board of Directors
The Issuer is dependent upon its executive management and board having relevant oil and gas experience. In this respect, it is noted that the Issuer currently has no own employees, but is reliant on services from other companies in the Group, meaning that the Issuer's control of key personnel's connection to the Group and the Issuer is remote. The loss of any of such personnel with its consequential loss of institutional and operational knowledge, experience, expertise and possible effect on governmental relations, and its ability to deliver the strategy of the Issuer could have a disproportionate and material adverse effect on the Issuer.
The loss of or diminution in the services of members of the Issuer's executive management team or board could have a material adverse effect on the Issuer's business, financial condition and results of operations.
There is no assurance that the Issuer will successfully continue to retain existing specialised personnel and executive management or attract additional qualified executive management and/or oil and gas personnel required to successfully execute and implement the Issuer's business plan, which will be particularly important as the Issuer expands. Competition for such personnel is intense. The loss of such personnel and the failure to successfully recruit replacements would adversely affect its business, prospects, financial condition and results of operations.
The Issuer relies on the services of third parties to implement its growth and development
The Issuer relies to a large extent on external contractors to carry out drilling activities, transportation of oil and gas and the construction, operation and maintenance of its facilities. As a result, the Issuer is dependent on external contractors performing satisfactorily and fulfilling their obligations. Any failure by an external contractor to perform satisfactorily and fulfil its obligations may lead to delays or curtailment of the production, transportation or delivery of oil and gas and related products. In addition, the costs of third party operators may increase, leading to higher production and transportation expenses for the Issuer. Any such failure in performance or increase in costs could have an adverse effect on the Issuer's results of operations.
33 Risk factors, cont’d
Some of the services required for the Issuer's operations and strategic developments are currently only available on commercially reasonable terms from a limited number of providers. These operations and developments may be interrupted or otherwise adversely affected by failure to supply, or delays in the supply of, services that meet the Issuer's quality requirements. A change of a provider of such services may result in the Issuer experiencing additional costs, interruptions to supply continuity or other adverse effects on its business. There is no guarantee that the Issuer will be able to find adequate replacement services on a timely basis or at all. Any failure in performance by third party service providers, external contractors or consultants, increase in costs or inability to find adequate replacement services on a timely basis, if at all, could have a material adverse effect on the Issuer's business prospects, financial condition and results of operations.
The Issuer cannot accurately predict its future decommissioning liabilities
The Issuer has assumed certain obligations in respect of the decommissioning of its fields and related infrastructure. These liabilities are derived from legislative and regulatory requirements concerning the decommissioning of wells and production facilities and require the Issuer to make provision for and/or underwrite the liabilities relating to such decommissioning. Although the Issuer's accounts make a provision for such decommissioning costs, there can be no assurances that the costs of decommissioning will not exceed the amount of the long-term provision set aside to cover such decommissioning costs. In addition, governments may require decommissioning to be carried out in circumstances where there is no express obligation to do so, which may result in higher decommissioning costs than the Issuer expected at the time when provisions were made, and it may be required to provide cash-back guarantees, blocked cash deposits or similar upfront relating to future decommissioning costs. It is difficult to forecast accurately the costs that the Issuer will incur in satisfying its decommissioning obligations and the Issuer may have to draw on funds from other sources to bear such costs. Any significant increase in the actual or estimated decommissioning costs that the Issuer incurs could have a material adverse effect on the Issuer's business, results of operation, financial condition and prospects.
Risks associated with legal disputes
The Issuer may from time to time be involved in legal disputes and legal proceedings related to the Issuer's operations or otherwise. Such disputes and legal proceedings may be expensive and time- consuming, and could divert management's attention from the Issuer's business. Furthermore, legal proceedings could be ruled against the Issuer and the Issuer could be required to, inter alia, pay damages, halt its operations, stop its expansion projects, etc., which could consequently adversely affect the Issuer's business, prospects, results of operations or financial condition.
Political uncertainty
The citizens of the United Kingdom recently voted to withdraw from the European Union and the Government of the United Kingdom has started taking steps to implement such withdrawal. Some European countries have also experienced the rise of anti-establishment political parties and public protests held against open-door immigration policies, trade and globalization. To the extent that certain political actions taken in Europe and elsewhere in the world result in a marked decrease in free trade, access to personnel and freedom of movement, it could have an adverse effect on the Issuer's ability to market its products, increase costs for goods and services required for third party lessees' operations, reduce their access to skilled labour and as a result, negatively impact the Issuer's business, financial condition, results of operations or prospects.
34 Risk factors, cont’d
RISKS RELATED TO BONDS AND THE BOND GUARANTEES
It may be difficult to realize the value of the collateral securing the Bonds
The collateral securing the Bonds (the "Collateral"), will be subject to any and all exceptions, defects, encumbrances, liens, security interests and other imperfections permitted under the Bond agreement and accepted by other creditors that have the benefit of first-priority security interests in the Collateral securing the Bonds, from time to time, whether on or after the date the Bonds are first issued. The existence of any such exceptions, defects, encumbrances, liens, security interests and other imperfections could adversely affect the value of the Collateral, as well as the ability of the Bond Trustee to realize such Collateral. Furthermore, the priority ranking of security interests can be affected by a variety of factors, including, among others, the timely satisfaction of perfection requirements, or statutory liens.
The security interests in the Collateral will be granted to the Bond Trustee rather than directly to the Bondholders. The ability of the Bond Trustee to enforce certain of the Collateral may be restricted by local law
The security interests in the Collateral that will secure the obligations of the Issuer under the Bonds and the obligations of the Guarantors under the relevant Guarantees will not be granted directly to the Bondholder, but will be granted only in favour of the Bond Trustee. The terms and conditions for the Bonds will provide that only the Bond Trustee has the right to enforce the Security Documents. As a consequence, Bondholders will not have direct security interests and will not be entitled to take enforcement action in respect of the Collateral securing the Bonds, except through the Bond Trustee subject to the terms and conditions of the Bonds. The ability of the beneficial owners of the Bonds and the Bond Trustee to enforce the security may be subject to limitations.
The Issuer and the Guarantors will have control over the Collateral
The finance documents will, subject to certain terms allow the Issuer and the Guarantors to remain in possession of, retain control over, freely operate, and collect, invest and dispose of any income from the Collateral. So, the Issuer and the Guarantors, may, among other things, without any consent by the Bond Trustee or any security agent, conduct ordinary course activities with respect to the Collateral, such as selling, factoring or otherwise disposing of Collateral and making ordinary course cash payments, including repayments of indebtedness. Any of these activities could reduce the value of the Collateral and consequently the amounts payable to holders of the Bonds from the proceeds of any sale of the Collateral in the case of an enforcement.
The Bonds and the Bonds' guarantees will be subject to certain limitations on enforcement and may be limited by applicable laws or subject to certain defences that may limit its validity and enforceability
The Issuer and the Guarantors are organized under the laws of the Netherlands. Applicable fraudulent transfer and conveyance and insolvency laws, equitable principles and, limitations on the enforceability of judgments obtained in courts in the Netherlands, could limit the enforceability of the relevant Bond Guarantee against a Guarantor or the enforceability of the security interests in the Collateral subject to such regulations. Furthermore, particular jurisdictions differ in respect of other applicable laws that could impact the enforceability of a Bonds Guarantee and the Collateral (or the extent of such Bonds Guarantee or Collateral), such as laws concerning financial assistance, preservation of share capital, thin capitalization, corporate purpose or benefit or other similar laws.
Enforcing your rights as a holder of the Bonds or under the guarantees or security across multiple jurisdictions may prove difficult
The Bonds will be issued by the Issuer, which is incorporated under the laws of the Netherlands, and the Bonds will be guaranteed by the Guarantors, which are also incorporated under the laws of the Netherlands. In the event of a bankruptcy, insolvency or similar event, proceedings could be initiated in the Netherlands. Proceedings could also be initiated in other countries to enforce rights against Collateral located there. Such multijurisdictional proceedings are likely to be complex and costly for creditors and otherwise may result in greater uncertainty and delay regarding the enforcement of Bondholders rights.
Moreover, in certain jurisdictions, it is unclear whether all security interests in the Collateral give the Bond Trustee a right to prevent other creditors from realizing the Collateral or whether certain security interests only give the Bond Trustee and the holders of the Bonds priority (according to their rank) in the distribution of any proceeds of such realization. Furthermore, It may further be difficult or even impossible for the Bond Trustee to enforce the security.
35 Risk factors, cont’d
The Bonds may not be a suitable investment for all investors
Each potential investor in the Bonds must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: (i) have sufficient knowledge and experience to make a meaningful evaluation of the Bonds, the merits and risk of investing in the Bonds and the information contained in this presentation; (ii) have access to, and knowledge of, the appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Bonds and the impact the Bonds will have on its overall investment portfolio; (iii) have sufficient financial resources and liquidity to bear the risks associated with investment in the Bonds; (iv) understand the terms of the Bonds and the behaviour of the relevant financial markets; and (v) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investments and its ability to bear the applicable risks.
The Issuer might be unable to make scheduled payments on the Bonds, and to repay the Bonds at maturity
During the lifetime of the Bonds, the Issuer will be required to make payments on the Bonds. The issuer's ability to generate cash flow from operation and to make scheduled payments on and to repay the Bonds, will depend on the future financial performance of the Issuer. If the Issuer is unable to generate sufficient cash flow from operations in the future to service its debt, it will be forced to adopt an alternative strategy that may include actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing indebtedness or seeking equity capital. The Issuer cannot assure investors that any of these alternative strategies could be effected on satisfactory terms, if at all, or that they would yield sufficient funds to make required payments on or to repay the Bonds. Inability to effect such strategies may have a material adverse effect on the Issuer's business, results of operations, financial position and/or cash flow.
A trading market for the Bonds may not develop and the market price of the Bonds may be volatile
The Bonds will be new securities for which currently there is no trading market, and one may never develop. Even though the Issuer will apply for listing of the Bonds on Oslo Børs, the Issuer has not entered into any market-making scheme to ensure liquidity of the Bonds. The listing of the Bonds on Oslo Børs will not necessarily ensure that a trading market will develop for such Bonds, and if a trading market does develop, that there will be liquidity in the trading market. There can be no assurance as to: (i) the liquidity of any such market that may develop; (ii) Bondholders' ability to sell the Bonds; or (iii) the price at which Bondholders would be able to sell the Bonds. If such a market were to exist, the Bonds could trade at prices that may be lower than the principal amount or purchase price, depending on many factors, including prevailing interest rates, the market for similar bonds and the Issuer's financial performance and outlook. If an active market does not develop or is not maintained, the price and liquidity of the Bonds may be adversely affected. As a result, investors may not be able to sell their Bonds easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market.
The value of the Collateral securing the Bonds might not be sufficient to enable the Issuer to perform its obligations under the Bonds
Although the Bonds are secured obligations of the Issuer, there can be no assurance that the value of the Collateral securing the Bonds and the Issuer's other assets will be sufficient to cover all the outstanding Bonds together with accrued interests and expenses in case of a default and/or if the Issuer goes into liquidation. The proceeds of any sale of the assets securing the Bonds following a default with respect to the Bonds may not be sufficient to satisfy, and may be substantially less than, amounts due on the Bonds.
There is a risk that security and perfection over certain collateral will not be in place by the issue date of the Bonds
Security over certain collateral will not be in place by the settlement date of the Bonds and will not be perfected on the settlement date of the Bonds. In addition, the rights of holders of Bonds may be adversely affected by the failure to perfect security interests on any of the Collateral.
There is a risk that the Issuer is not able to obtain all of the conditions precedent in time, which may lead to a mandatory prepayment of the Bonds
Most of the conditions precedent are under the control of the Issuer, but it is also inherent risk that not all of the conditions precedent are obtained in time. This may lead to a mandatory prepayment of the Bonds.
Optional redemption by the Issuer
The terms and conditions for the Bonds will provide that the Bonds shall be subject to optional redemption (in whole or in part) by the Issuer at an amount calculated in accordance with the terms and conditions of the Bonds. This is likely to limit the market value of the Bonds. During any period that the Issuer may elect to redeem the Bonds, the market value of those Bonds generally will not rise substantially above the price they can be redeemed. Furthermore, it may not be possible for Bondholders to reinvest proceeds at an effective interest rate as high as the interest rate on the Bonds.
36 Risk factors, cont’d
The Issuer may not be able to obtain the funds required to repurchase the Bonds upon a change of control
Upon the occurrence of a change of control event, each individual Bondholder shall have a right to require that the Issuer purchases all or some of its Bonds as set out in the terms and conditions for the Bonds. The Bonds are further subject to mandatory prepayment by the Issuer on the occurrence of certain specified events. It may not be possible for Bondholders to reinvest proceeds at an effective interest rate as high as the interest rate on the Bonds. It is further possible that the Issuer may not have sufficient funds, or that the Guarantors may not have sufficient funds to provide to the Issuer to pay the purchase price of the outstanding Bonds. Furthermore, the Issuer may not be able to obtain third-party financing to make the required redemption of the Bonds, resulting in an event of default under the Bonds.
Modification of the terms and conditions governing the Bonds
The terms and conditions governing the Bonds will contain provisions for calling meetings of Bondholders to consider matters affecting their interests generally. These provisions permit defined majorities to make decisions affecting and binding all Bondholders including bondholders who did not attend and vote at the relevant meeting and bondholders who voted in a manner contrary to the majority. The bond trustee may, without the consent of the Bondholders, agree to certain modifications of the Bond agreement and other finance documents which, in the opinion of the trustee, are proper to make.
Following the issuance of the Bonds, the Issuer will have substantial indebtedness
Following the issuance of the Bonds, the Issuer will have substantial indebtedness which could have negative consequences for the Bondholders as:
• the Issuer may be more vulnerable to general adverse economic and industry conditions;
• the Issuer may be at a disadvantage compared to competitors with less indebtedness or comparable indebtedness at more favourable interest rates and as a result, it may not be better positioned to withstand economic downturns;
• the Issuer's ability to refinance indebtedness may be limited or the associated costs may increase;
• the Issuer's flexibility to adjust to changing market conditions and ability to withstand competitive pressures could be limited, or the Issuer could be prevented from carrying out capital expenditures that are necessary or important to the Issuer's efforts to improve operating margins or the Issuer's business in general;
• the Issuer will have to dedicate a substantial portion of its cash flow to the payment of interest on its indebtedness, and repayment of the principal; and
• there is the inherent risk that the Issuer may default under the financial and operating covenants contained in the Bond agreement and/or in relevant debt instruments and/or finance agreements applicable to the Issuer.
Despite the Group's current indebtedness and restrictive covenants, the Issuer and the Guarantors will still be able to incur significant additional amounts of debt, which could lead to or exacerbate risks associated with a substantial leverage
Despite its current indebtedness, the Group may incur substantial additional debt in the future. Although the terms and conditions for the Bonds will contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. To the extent new debt is added to the Group's currently anticipated debt levels, the substantial leverage related risks described above would be further exacerbated. Furthermore, if the Guarantor incur secured debt in the future, the Guarantor's obligations under the guarantees will be effectively subordinated such secured debt to the extent of the assets securing such debt.
37 Risk factors, cont’d
The Bond terms and conditions will contain covenants that impose restrictions on the Issuer and the Guarantors
The terms and conditions governing the Bonds will provide certain general restrictions on the Issuer and Guarantors from taking certain actions. The restrictions in the terms and conditions of the Bonds may prevent the Issuer or each of the Guarantors from taking actions that it believes would be in its best interest, and may make it difficult for the Issuer or each of the Guarantors to execute its business strategy successfully, take advantage of potential business opportunities, react to market conditions, raise additional debt or equity, or compete effectively with companies that are not similarly restricted.
If an event of default occurs under the Bonds or any other of the Issuer's debt instruments and is not cured or waived, borrowings under any other debt instruments that the Issuer has outstanding, including the Bonds, that contain cross-default provisions may also be accelerated or become payable on demand, together with accrued and unpaid interest and other fees payable thereunder. In these circumstances, the Issuer's assets and cash flow may not be sufficient to repay in full all of the Issuer's indebtedness that has been accelerated, including the Bonds then outstanding, which could force the Issuer into bankruptcy or liquidation. The Issuer might not be able to repay its obligations under the Bonds in such an event.
Events of default under the Bonds upon which the Issuer's borrowings and additional amounts under the Bonds will become payable include termination or revocation of any authorizations, non-payments, breach of certain other obligations, misrepresentations and creditors' processes and insolvency events.
Exchange rate risks and exchange controls
The Issuer will pay principal and interest on the Bonds in Euro. This presents certain significant risks relating to currency conversions if an investor's financial activities are denominated principally in a currency or currency unit (the "Investor's Currency") other than Euro. These include the risk that exchange rates may significantly change (including changes due to devaluation of Euro or revaluation of the Investor's Currency) because of economic, political and other factors over which the Issuer has no control and the risk that authorities with jurisdiction over the Investor's Currency may impose or modify exchange controls. An appreciation in the value of the Investor's Currency relative to Euro would decrease (1) the Investor's Currency equivalent yield on the Bonds, (2) the Investor's Currency equivalent value of the principal payable on the Bonds and (3) the Investor's Currency equivalent market value of the Bonds.
Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal than expected, or no interest or principal at all.
There may be tax consequences for investors as a result of any foreign currency exchange gains or losses resulting from an investment in the Bonds. An investor should consult its own tax advisor concerning the tax consequences in connection with acquiring, holding and disposing of the Bonds.
Investment in the Bonds involves the risk that subsequent changes in market interest rates may adversely affect the value of the Bonds.
As the Bonds bear interest at a fixed rate rather than by reference to an underlying index, an increase in interest rates might make the income payable on the Bonds less attractive, and may reduce the price investors could realize on the sale of the Bonds. Further, inflation will reduce the real value of the Bonds over time, affecting the price that an investor could realize on a sale of the Bonds.
The transferability of the Bonds may be limited under applicable securities laws.
The Issuer is relying upon exemptions from registration under the U.S. Securities Act of 1933, as amended, applicable State securities laws, UK securities laws and Directive 2003/71/EC as amended (the "Prospectus Directive" which term includes any relevant implementing measure in the member states of the European Economic Area which has implemented the Prospectus Directive) in the placement of the Bonds. As a result, in the future the Bonds may be transferred or resold only in a transaction registered under or exempt from the registration requirements of such legislation. Therefore, investors may not be able to sell their Bonds at their preferred time or price. The Issuer cannot assure investors as to the future liquidity of the Bonds and as a result, investors bear the financial risk of their investment in the Bonds.
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Prospective investors may not be able to recover in civil proceedings for U.S. securities laws violations
The Issuer and the Guarantors are each incorporated as a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) under the laws of the Netherlands. All of the members of senior management and directors and executives of the Issuer and Guarantors currently reside outside the United States and all of its and their assets are currently located outside the United States. As a result, prospective investors may be unable to effect service of process within the United States, or to recover on judgments of U.S. courts in any civil proceedings under U.S. federal securities laws or the securities laws of any state within the United States.
The United States and the Netherlands currently do not have a treaty providing for the reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. Consequently, a final judgment for payment obtained against the Issuer and Guarantors given by a court in the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be recognized and enforceable in the Netherlands. In order to obtain a judgment which is enforceable in the Netherlands, the claim must be re-litigated before a competent court in the Netherlands. This court has discretion to attach such weight to a judgment of a U.S. court as it deems appropriate.
Netherlands insolvency may not be as favourable to you as United States or other insolvency laws
The Issuer and Guarantors are incorporated under the laws of the Netherlands. Any insolvency proceedings by or against the Issuer or the Guarantors would likely be based on the insolvency laws of the Netherlands. Netherlands insolvency proceedings may differ significantly and conflict with insolvency laws of the United States, including in the areas of secured rights of and creditors rights, the ability to void preferential transfer, priority of governmental and other creditors, ability to obtain post-petition interest and duration of the proceedings. Netherlands laws may not be as favourable to your interests as creditors as the laws of the United States or other jurisdictions with which you may be familiar.
Legal investment considerations may restrict certain investments
The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (i) the Bonds are legal investments for it, (ii) the Bonds can be used as Collateral for various types of borrowing and (iii) other restrictions apply to its purchase or pledge of the Bonds. Financial institutions should consult their legal advisors or the appropriate regulators to determine the appropriate treatment of the Bonds under any applicable risk-based capital or similar rules.
The Issuer and the Guarantors are jointly and severally liable for Dutch corporate income tax liabilities of the Group
The Issuer and the Guarantors are included in a tax consolidation for Dutch corporation tax purposes (fiscale eenheid, "Fiscal Unity"). Each of the Group companies included in the Fiscal Unity is jointly and severally liable for the Dutch tax liabilities of the entire Fiscal Unity.
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