Petrofac, First Reserve sign energy infrastructure agreement


Petrofac has entered into a framework agreement with First Reserve, an 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 division, as well as in new energy infrastructure projects that utilize 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 $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 $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.

The first 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 Ltd. to PetroFirst Infrastructure Holdings Ltd., wholly owned by the First Reserve Energy Infrastructure Fund I (FREIF I). Through its subsidiaries, Petrofac FPSO Holding Ltd. owns interests in the FPSO Berantai, FPF3 (formerly Jasmine Venture) and FPF5 (formerly Ocean Legend).

The total initial consideration is expected to be approximately $450 million, which comprises cash and the assumption by the joint venture of around $130 million of existing project finance in relation to the Berantai FPSO. 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 recognize net profit of between $50 million and $60 million in the full year ending Dec. 31 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 Ltd. thereafter. Following closure of the transaction, PetroFirst Infrastructure Partners will have committed $179 million of equity under the Agreement (FREIF I up to $143 million; Petrofac $36 million), with up to $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 $39 million and $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.

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