First Reserve and Petrofac, an oil and gas industry service provider, have agreed to form PetroFirst Infrastructure Partners. According to terms of the deal, First Reserve plans on investing up to $1 billion in the joint venture while Petrofac intends to contribute up to $250 million in it. The focus of PetroFirst Infrastructure Partners will be on acquiring existing assets from Petrofac’s Integrated Energy Services division as well as buying new energy infrastructure projects. For the first transaction under the joint venture, First Reserve is planning on acquiring 80 percent of Petrofac’s floating product facilities for a total initial consideration of about $450 million.
GREENWICH, Conn., HOUSTON, LONDON, and HONG KONG – June 26, 2014 – Petrofac, the international service provider to the oil and gas industry, has entered into a Framework Agreement (the ‘Agreement’) with First Reserve, the global energy-focused infrastructure investment firm, to create PetroFirst Infrastructure Partners. The new venture intends to deploy capital both in purchasing a number of existing assets from Petrofac’s Integrated Energy Services (IES) division (commencing with the first transaction as described below), as well as in new energy infrastructure projects that utilise Petrofac’s development capability.
The new venture is anticipated to be funded 80% by First Reserve and its investors, with Petrofac retaining the balance of ownership. Up to US$1 billion is expected to be committed by the First Reserve Energy Infrastructure Funds and its investors and Petrofac expects to contribute up to a maximum of US$250 million in the form of existing assets and cash. The gross investment capacity of the new venture is expected to be significantly increased through debt leverage available to infrastructure investments.
Ayman Asfari, Petrofac Group Chief Executive, commented: “We are delighted to have signed this agreement with First Reserve. As recently stated, we have re-focused our IES business development plans and this innovative venture reinforces the positioning of IES as an enabler for the Petrofac group, allowing us to concentrate our resources on our core strengths and underlining our commitment to capital discipline. In addition to releasing capital from our currently deployed assets, the agreement opens up future opportunities to create value for our customers that require access to capital alongside Petrofac’s proven execution capability. We are seeing a clear shift in the industry to contracted and shared infrastructure models and this initiative will facilitate our ability to support our clients with this offering.”
Bill Macaulay, First Reserve Chairman and CEO, commented: “The creation of PetroFirst Infrastructure Partners represents an exciting opportunity to invest in energy infrastructure alongside a partner with a proven track record for project execution. The Fund will benefit from an investment in long-term contracted assets with strong support from Petrofac and its leading energy sector customers. We look forward to working together with Petrofac on what we expect will be a rewarding collaboration.”
Initial transaction in floating production facilities
The first transaction (‘the Transaction’) under the Agreement will see Petrofac and First Reserve establish a joint venture in respect of three of Petrofac’s deployed and contracted floating production facilities. Petrofac has agreed to sell 80% of the share capital of Petrofac FPSO Holding Limited to PetroFirst Infrastructure Holdings Limited, wholly owned by the First Reserve Energy Infrastructure Fund I (‘FREIF I’). Through its subsidiaries, Petrofac FPSO Holding Limited owns interests in the FPSO Berantai, FPF3 (formerly Jasmine Venture) and FPF5 (formerly Ocean Legend)(1).
The total initial consideration is expected to be approximately US$450 million, which comprises cash and the assumption by the joint venture of around US$130 million of existing project finance in relation to the Berantai FPSO(2). The proceeds will be used for general corporate purposes. Petrofac is entitled to a share of additional future cashflows upon renewal or redeployment of the facilities at the end of their current deployment contracts.
Prior to this transaction, Petrofac had expected to recognise net profit of between US$50 million and US$60 million in the full year ending 31 December 2014 from the floating production facilities being sold. The Transaction is expected to close by the end of the third quarter of 2014, subject to certain conditions being met. Petrofac will report 100% of the earnings from the floating production facilities up to the closing date and 20% of the earnings of Petrofac FPSO Holding Limited thereafter. Following closure of the transaction, PetroFirst Infrastructure Partners will have committed US$179 million of equity under the Agreement (FREIF I up to US$143 million; Petrofac US$36 million), with up to US$1.1 billion of equity available for future opportunities.
Petrofac FPSO Holding Limited will retain a put option, such that Petrofac may be required to repurchase one or more of the facilities or their holding companies for agreed aggregate consideration of between US$39 million and US$105 million at the end of their deployment or at certain other key junctures. Management believes that the repurchase consideration accurately reflects the forecast residual values of the floating production facilities at the times when the put options would vest.