Effective Project Development

Jan 3, 2017

Introduction

The global natural resources sector, covering conventional, unconventional, alternative, and renewable resources, is highly integrated and inherently driven by commercial market fundamentals and dynamics.  Assets monetization and commoditization of the respective natural resources value chains covers combinations of Upstream (exploration, production, generation), Midstream (processing, refining, transmission), and Distribution (terminals, storage, local distribution networks).  Accordingly the projects, largely infrastructure based, are highly capital intensive.  In many cases, the projects have an economic and operating life of multiple decades and must undergo various critical phases of Development, Execution, and Commercial Operations.

As shown, for a typical brownfield (expansion) or greenfield (newly proposed) project, the level of effort and corresponding critical path schedule for each key phase varies from a few months to multiple years.  From the initial start or “Zero” date, the major milestones from “Concept-to-Commissioning” include Financial Closure and Commercial Operation Date (COD).  The Development phase consists of costs comprising all pre-operative, preliminary and financing expenses, the Execution phase consists of all Capital Expenditures (CAPEX) and the Commercial Operations phase consists of all Operating Expenditures (OPEX).

Focus on Project Development

For Sponsors (promoters, developers, investors, private equity, etc.), Lenders (financial institutions, commercial / merchant banks, funds, etc.) and other Stakeholders, the main objective of the Development phase is facilitating key investment decisions for major capital projects.  The Development phase is critical as it serves as the final gate for obtaining corporate management’s Approval for Expenditure (AFE) via a “Go”/“No-Go” Decision.  The Development phase covers specific activities such as project strategy, evaluation, planning and definition with the prime goals of; managing potential downside technical-commercial risks; cost effective CAPEX and OPEX; increase assets value, and; improving assets performance during the Commercial Operations phase.

During the Feasibility assessment, project Sponsors undertake a considerable number of studies, evaluations, assessments and analyses covering technical, economic, financial, legal, regulatory, environmental, and social impacts.  These activities, in turn, have a direct effect on securing key statutory and regulatory approvals for Permits & Clearances at national, state and local levels.  For Sponsors, Lenders and other Stakeholders, both Transactional Contracts and Structured / Project Finance play a key role in further enhancing the “bankability” of the project through creditworthy counterparty agreements, “back-to-back” securities and guarantees supported by legally binding mechanisms and arrangements.  Lastly, based on timely subscription of all equity and syndication of all debt, the Development phase is concluded by achieving successful Financial Closure.

Accordingly, Nexant supports and assists various global Sponsors, Lenders and other Stakeholders on their projects with our value-added professional services including Lender’s Engineer/Consultant and Sponsor’s Engineer/Consultant.  Nexant also serves in Market Advisory roles to support project development, for which, through NexantThinkingTM, we provide specific insights, trends, forecasts, data and information on a multitude of global energy, chemicals and derivatives value chains and market segments.

Summary

An effective project Development phase has a direct impact on the long-term sustainability and viability of natural resource assets over an entire economic lifecycle.  Various Sponsors, Lenders and other Stakeholders can gain extensively from undertaking detailed Development steps to achieve timely asset monetization and thereby deliver positive cash flows and long-term capital appreciation.