InfraStrata plc (AIM: INFA), the gas storage company focused on the UK and Ireland, is pleased to announce the selection of Front-End Engineering Design (“FEED”) contractors for the above-ground facilities and the sub-surface elements of its Islandmagee gas storage project (the “Project”) and associated loan funding to partially finance the development of the Project. The Company also announces an organisational restructuring and Board changes as part of its development strategy.
- The FEED contractors have proposed to provide secured loans in aggregate of up to £1m for the FEED process, subject to contract, which will be conditional upon InfraStrata securing the remaining funding for the FEED.
- The loans will sit alongside the European Union (“EU”) grant for 50% of the FEED costs (paid in two tranches), resulting in approximately 75% of the total projected FEED cost being conditionally funded.
- To complete the FEED and commercialisation process and provide bridge finance between the two EU grant tranches, as well as working capital for the Company during this phase, will require a further £3m of funding which the Company is seeking.
- Restructuring of InfraStrata’s Board from January 2017, to focus on the next phase for the Company and Project.
- InfraStrata will re-locate to Belfast, minimising corporate overheads and enabling dedication of all resources towards bringing the Project to construction.
Selection of Front-End Engineering Design contractors
Following the completion of a tendering process, InfraStrata is pleased to announce that it has selected FEED contractors for the Project’s above-ground facilities and for the
sub-surface elements. The FEED will include a detailed plant design specification for the Project, a detailed project plan and cost estimate. The aim is for the FEED contractors to complete their work by the end of 2017 so that should funding then be forthcoming, the Project is ready to move to construction.
Both the FEED contractors have an international reputation and have both worked on many of the existing salt cavern storage projects in the UK.
Associated new secured loan funding arrangements and remaining funding requirements
One of the criteria of the tender process to select FEED contractors was for prospective contractors to show a flexible approach and a willingness to share risk and reward. InfraStrata is pleased to announce that it has agreed to put in place secured loan arrangements by which both FEED contractors will each provide loans to the project company, Islandmagee Storage Limited (“IMSL”), in aggregate of up to £1m against a total anticipated FEED budget of £4m (the “Loans”). The Loans, which are subject to contracts being agreed, will be repayable at the Final Investment Decision (“FID”), when a decision will be made whether to proceed to construction, or on 31 December 2018, whichever is earlier. The Loans will be secured on the assets of IMSL and attract interest at 10 per cent. per annum, which will be rolled up and paid on the Loan repayment date. The FEED contracts and the Loans will be conditional upon securing the remaining funding for the FEED. The Loans, alongside the EU grant for 50% of the FEED costs announced in June 2016, will result in approximately 75% of the total projected FEED cost being conditionally funded.
At this juncture, in addition to funding from the EU and the Loans, a further amount of approximately £3m will be required to complete the FEED and commercialisation process, inclusive of corporate overheads, working capital and bridging finance on the EU grant. The bridging finance, which may be in the form of debt, is required to cover the timing of receipt of funds from the European Commission grant which they pay in two stages: €1.6m of EU grant monies has already been received by the Company with the balance receivable once the FEED work has been completed, which is targeted for the end of 2017.
The Company is examining its options with its advisers for securing the necessary balance of funding to enable work to commence on the FEED in the shorter term and ideally by this calendar year end. Further announcements in this regard will be made as appropriate.
Recent progress and restructuring proposals to meet future requirements in the next phase of the Project
Significant progress has been made on the Project during 2016, including further stakeholder engagement, investing in the land assembly for the Project, securing the supply chain for the FEED, securing the EU grant, conducting a monetisation process and, with input from the monetisation process, developing the parameters and phasing of the Project to meet expected future market demands.
Plans are now being developed to restructure the teams at InfraStrata and IMSL in the coming months to match the skill requirements for the next phase of the Project, as well
as to appoint necessary advisers and technical consultants.
The Board of InfraStrata will be geared towards regulatory and corporate governance matters, with a focus on securing the funds to develop the Project. As part of this focus
and to minimise corporate overheads, InfraStrata will re-locate to Belfast in January 2017, with all of its resources being dedicated to bringing the Project to construction.
Andrew Hindle will step down from his role as CEO of InfraStrata effective 1 January 2017, but will remain a Non-Executive Director of the Company. Andrew, a Chartered
Geologist, will continue to advise on the Project in a technical capacity. Stewart McGarrity, current Financial Director and Anita Gardiner, current Commercial Development Director, will become Joint Managing Directors, bringing vital and complementary skills required for the execution of the next phase of the Project.
Stewart McGarrity has extensive and broad experience in senior financial and commercial roles for major global infrastructure projects, including working on the construction and development of the Hong Kong International Airport. Anita Gardiner has been managing the Project since joining InfraStrata in 2014 and previously held various project and managerial positions with BP in the UK and India, most recently as Business Development Manager for BP Gas Marketing where she had responsibility for asset development and origination activities across Europe.
Background on monetisation of the Project
As previously announced, the Company’s strategy has been to seek funding arrangements during 2016, in order to commence a FEED and commercialisation process by calendar year end.
During 2016 the Company organised an extensive monetisation process through Centrus Advisors LLP and VSA Capital Ltd, both having been appointed in March 2016. A wide range of options were explored, from investment into the Project alongside the EU grant, risk sharing with contractors, or the sale of the entire Project to a third party.
As a result of the findings from this process, together with the positive changes in the fundamentals of the gas storage market and the supportive Competent Person Report announced in October 2016, the Board decided to restructure its business with the goal of attracting the remaining risk capital required to take the Project through to FID. The
restructuring has included increasing InfraStrata’s equity position from 65% to 90% in IMSL and seeking to divest all the Company’s other remaining business interests, as announced in September 2016.
As part of a commercialisation process to run alongside the FEED in 2017, InfraStrata will seek to secure capacity contracts to support further project finance. During the
monetisation process, the Company had a number of discussions regarding the Project with interested parties. The feedback at that time with respect to investment in gas
infrastructure was that it would be preferable for the FEED to be completed and for the Project to have sufficient certainty with regards to revenues, including contracted
revenues where possible, in order to support the additional project finance that would be required.
The proposed new Loans from the FEED contractors will be an important component alongside the EU grant funding in supporting the Project to reach FID and thereby enable the Project to proceed thereafter to full construction at a currently estimated cost of approximately £300m. The Directors of InfraStrata believe that proceeding with the Project to FID will provide InfraStrata with a greater number of monetisation options in the future, with such options having the potential to optimise the return to shareholders.
Commenting, Ken Ratcliff, Chairman of InfraStrata, said:
" The Board of InfraStrata is delighted to have secured world leaders in the provision of engineering services to gas storage projects for the next stage of the Project. The risksharing approach of the contractors as technical experts is very welcome and shows a shared belief in the delivery of the Islandmagee project.
The increased emphasis on using renewable generation and the ongoing issues prevailing at existing, ageing, gas storage facilities in the UK, reinforces the existing fundamentals that support our commitment to develop this project. To meet the Project’s demands, we are fully focused upon identifying the specific skill sets required, whilst
keeping corporate overheads to a minimum. The relocation to Belfast and the proposed Board changes are designed to achieve these goals to maximum effect at minimum cost."