Year 1 2 3 4 5 6 7 8 9 10 11 12 - Petrogates Inc.

petrogates.com

Year 1 2 3 4 5 6 7 8 9 10 11 12 - Petrogates Inc.

The Organisation for Sustainable

Programmes & Renewable Energy

(OSPRE)

Converting Natural Gas into Liquid Fuels

Proposal & Financial Feasibility Report

January 2011


Table of Contents

Overview ........................................................................................................................................................................ 3

Benefits of the Solution ............................................................................................................................................ 3

Current Situation ........................................................................................................................................................ 4

Gas To Liquid - The Answer for Stranded Gas ............................................................................................... 4

Proven Technology .................................................................................................................................................... 5

The Market Opportunity .......................................................................................................................................... 5

Global Gas Reserves ................................................................................................................................................... 6

The potential for Gas Reserves ...................................................................................................................... 7

Project Objectives .......................................................................................................................................... 8

Headline Financials.................................................................................................................................................... 8

The Modular Approach .................................................................................................................................. 9

Process Diagram ............................................................................................................................................ 9

Mass Balance of the GTL Process ........................................................................................................................ 10

Calculation of the Volumes .................................................................................................................................... 11

Profit per MMscf of Gas Processed ............................................................................................................. 11

Electricity ..................................................................................................................................................... 12

Revenues per Unit .................................................................................................................................................... 12

Annual Revenues ......................................................................................................................................... 12

Plant Capital and Implementation Costs .......................................................................................................... 13

Plant Operating Costs .............................................................................................................................................. 13

Staffing Levels & Salaries ....................................................................................................................................... 14

Salaries ......................................................................................................................................................... 14

Staffing Levels per Shift at all Facilities ....................................................................................................... 15

Project Timescales ................................................................................................................................................... 16

Revenue Projections by Type ............................................................................................................................... 17

Summarised Financial Statement ....................................................................................................................... 18

Summarised Financial Statement (Continued) .............................................................................................. 19

Financial Conclusion ............................................................................................................................................... 20

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Chapter 1 – Introduction

Overview

This document details a project overview from the Organisation for Sustainable Programmes & Renewable

Energy (OSPRE) to implement a Gas to Liquid facility at existing oil wells or gas fields, where gas is currently

stranded or being flared, reprocessing the gas that is being currently being wasted to produce high-grade

Gasoline, LPG fuels and Electricity.

Benefits of the Solution

The GTL facility:

� Produces clean transport fuels and green electricity;

� Demonstrates that gas flaring is lost revenue, with added income derived from stranded gas;

� Provides revenues from capped oil wells where natural gas still exists;

� Is Modular and Mobile for use in small gas fields;

o Modular implementation spreads the cost for installation of multi-modules in larger gas

fields;

� Produces fuels that require no additional refining, providing fuels to the local market, with minimal

logistical issues and require no changes to existing engine systems;

� Produces fuels at a lower cost than traditional fossil fuels;

Increases efficiency within the country’s oil & gas industry, producing transport fuel to provide

additional revenues by exploiting untapped natural resources;

� Uses proven technologies that have many years of practical field applications, precluding the need

for extensive testing and market entry delays required by new technologies;

� Is guaranteed to produce the stated volumes. OSPRE’s established engineering & manufacturing

partners provide insurance wrapped guarantees securitising delivery and production capabilities

of each facility;

� Delivers significant environmental benefits, with minimal CO2 being produced;

� Creates a new industry and produce hundreds of new jobs, stimulating the local economy.

� Provides Strong Investment Returns with an IRR in excess of 50%

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Current Situation

Every day natural gas flares blaze across many regions of the world burning off 10 billion cubic feet of

energy, the equivalent of 1.7 million barrels of oil. Most of this gas is “stranded” as previously there was no

economical way to transport it. Without a cost-effective way to turn natural gas into oil, the gas itself has

to be transported, without a gas pipeline at hand, that can be very hard to do, as the gas must be liquefied

for shipping.

This challenge is resolved by conversion of natural gas into a transportable and saleable product.

Historically this has implied LNG as the medium of bringing remote natural gas to the marketplace.

However the heavy investment and, relatively speaking, small number of receiving terminals limits the

marketing flexibility for LNG.

An alternative which is gaining increasing attention is the conversion of natural gas to liquids - ranging from

gasoline to middle distillates using Gas to Liquid technology (GTL). This approach avoids the infrastructural

limitations of LNG and at the same time provides a market large enough to accept the potential volumes,

both in the local market and for export.

Gas To Liquid - The Answer for Stranded Gas

• The major benefit of OSPRE’s modular facilities enables 40% of the World’s previously inaccessible

gas reserves to be exploited, providing a huge market opportunity.

• GTL provides the economic and practical solution for conversion of stranded natural gas with

minimal economic value into high value, transportable energy fuels;

• The process of Gas to Liquid is well proven with many large scale facilities operating producing

liquid hydrocarbon fuels from gas, such as the Pearl project in Qatar.

• The Fuel produced from each plant is refined and ready to use;

• Each OSPRE GTL module produces 1,300 barrels of transport fuels per day from 7.9 Mscfd of

natural gas.

• The OSPRE Gas to Liquid (GTL) proven technology is modular and mobile, designed for small-scale

facilities. (1,300 barrels per day, per module.)

• The unique selling point of the modular system enables the exploitation of gas reserves that were

previously uneconomical;

• The OSPRE solution is commercially viable, low cost, and returns investment within 3 years

• The solution produces refined, ready to use, Transport Fuels, from stranded or flared Natural Gas;

• Creates significant revenues from a resource that is currently being wasted or neglected;

• Provide revenues from capped oil wells that still contain natural gas reserves;

• Each module produces 10MW of electricity for export to the local grid;

• Modules can be “barge built” for off-shore and coastal operation;

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Proven Technology

Basic GTL technology was invented in 1923, when two German scientists, Franz Fischer and Hans Tropsch,

discovered the catalytic conversion of carbon monoxide and hydrogen (synthesis gas) into synthetic

hydrocarbons.

The GTL process involves feeding pipeline-quality natural gas (methane) into a reformer or generator where

it is converted into synthesis gas (a combination of carbon monoxide and hydrogen). This technology is

similar to processes used for years to make methanol and ammonia.

Then the synthesis gas is processed through a Fischer-Tropsch reactor where it is converted into GTL fuels

(synthetic crude). In general, GTL fuels are fuels that can be produced from natural gas using a Fischer-

Tropsch process. It can also be produced by the same process from coal, biomass, or any carbon-

containing material.

The liquids produced by the OSPRE GTL module include Gasoline, LPG and LSR Naphtha.

GTL fuel has virtually no sulfur, aromatics, or toxics. The resulting GTL fuels can be used neat in existing

engines and infrastructure, or blended with today’s non-complying fuels to make the fuel cleaner so it will

comply with new fuel standards.

These fuels provide an opportunity to reduce dependence on petroleum-based fuels and reduce tailpipe

emissions.

For over 70 years, interest in commercial gas to liquids (GTL) technology has been limited to countries with

political rather than economic drivers, such as South Africa. Technical advances in GTL development has

surged substantially in the last decade, and these have allowed GTL technology to be competitive at current

oil and natural gas prices, and be used in smaller applications, opening up new markets which are huge.

The Market Opportunity

Reserves of "stranded" natural gas are estimated to be 2,500 trillion cubic feet. If captured and converted,

the gas would make (after conversion losses) 250 billion barrels of clean transportation fuels. This fuel

potential is similar in size to the oil resources of Saudi Arabia.

Globally there are many wells that could benefit from GTL technology, and as the OSPRE technology is

modular and mobile, it is perfect for smaller, remote wells where the gas would otherwise not be able to

be exploited.

Over the next decade GTL expansion is expected to surge and is predicted to become a fast growing market

for “stranded” gas. Major oil companies with commercial GTL histories such as Sasol, Shell, ExxonMobil,

ConocoPhillips, have announced plans to build large-scale (in excess of 50,000 barrels per day) GTL plants to

produce GTL fuels, and a number of large-scale GTL facilities are already in production.

Certain countries are taking leading positions on implementing GTL as a component of long-term strategy,

and OSPRE is planning to introduce small-scale GTL facilities in many countries to exploit the gas from

smaller reserves which are not suitable or financially viable for large-scale production.

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Global Gas Reserves

The following chart shows the proven global Natural Gas Reserves. As you can see there are several countries with significant gas reserves and therefore provide

strong market opportunities for GTL.

Venezuela

3%

Nigeria

3%

United States

4%

United Arab Emirates

4%

Saudi Arabia

4%

Turkmenistan

1%

Indonesia

2% Norway

1%

Algeria

3%

Iraq

2%

Reserves (Tcf)

Uzbekistan

1% Kazakhstan

Qatar

17%

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1%

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Netherlands

1%

Canada

1%

Russia

31%

Egypt

1%

Ukraine

1%

Malaysia

1%

Iran

17%


The potential for Gas Reserves

As shown above, there are extensive proven Natural Gas Reserves in many countries. The potential for this Natural Gas (much of which is not currently exploited

today), to be converted into Gasoline and Liquid Petroleum products is significant and has been calculated to be 25 billion barrels of fuel (similar to the oil

reserves of Saudi Arabia), producing significant revenues for the Governments and Companies involved.

250.00

200.00

150.00

100.00

50.00

-

Billion Barrels of Fuel

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Project Objectives

The proposal is to introduce a Gas to Liquid Facility that converts stranded gas into “clean and green”

Gasoline and LPG, and export 10MW of electricity to the local grid.

OSPRE proposes to implement the facility and assist with training the local operators on behalf of the local

owners.

OSPRE will ensure that the facility operates efficiently, meets all regulatory standards and enables the

Government to recover value from this otherwise unexploited resource.

Headline Financials

The headline financials for this project are as follows:

Total Capital Cost: $70,280,000

Debt Capital Required: $56,227,050 (80%)

Equity Capital Required: $14,056,000 (20%)

Annual EBITDA: $34,207,228

Internal Rate of Return (IRR): 140%

Project Operational within: 12 – 15 months

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Chapter 2 – The Process

The Modular Approach

OSPRE solutions have been developed to utilise proven technology alongside the most advanced

technological processes and integrate them to create technology that has the benefit of having been in

operation for decades, with the latest advancements included.

All OSPRE facilities are designed to be modular which allows us to build each plant to the projects

requirements, and adapt to the projects needs as times change. The rationale for this is to best ensure that

all our facilities are future-proofed, and that we remain at the cutting edge of the technology.

The combined solution enables countries to implement consolidated gas and transport fuel strategies that

exploit maximum value from natural gas resources. This provides significant revenue potential and

economic benefit to the country, as well as providing major environmental benefits.

In addition, the fuel outputs can be varied depending on each countries requirement, enabling the

solutions to effectively adapt to market demand, protecting the capital invested.

Process Diagram

Below is a Basic chemical diagram of how the GTL process generally works.

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Mass Balance of the GTL Process

The diagram below shows the simplified Mass balance of the GTL process for one Module.

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Chapter 3 – Project Financials

The following figures have been used in preparation of the financials for this GTL proposal.

Calculation of the Volumes

Gas Processing

The conversion we have used for converting the Natural Gas into Gasoline (Petroleum) is 122,000 Btu’s per

gallon or 5.1Mbtu’s per barrel of gasoline.

For LPG production, this is 84,950 Btu’s per gallon or 3.5Mbtu’s per barrel of LPG.

In addition to the Gasoline produced, the OSPRE solution also produces LPG and LSR Naphtha in small

quantities of between 6-20% of the gasoline volumes.

Conversion Efficiency

The conversion efficiency of BTU’s to fuels has been calculated at 75%.

Fuels

Every 1MMscf of gas is converted into:

� 141 barrels of gasoline,

� 31 barrels of LPG, and

� 8.5 barrels of LSR Naphtha.

This project has been designed to process 7.9MMscf of gas per day (which is the standard size of each

module). This will produce the following volumes of product per day:

� 1,056 barrels of Liquid Gasoline Fuels, (44,372 gallons or 167,964 litres)

� 231 barrels of LPG (9,715 gallons or 36,777 litres)

� 63 barrels of LSR Naphtha, (2,662 gallons or 10,078 litres)

Profit per MMscf of Gas Processed

The OSPRE GTL system allows for significant profits to be generated from ‘stranded gas’ or ‘associated gas’

that is currently being flared. The calculated net profits that can be generated per MMscf of gas processed

are in excess of $10,900 after all costs of processing and capital servicing have been taken into account.

This has been calculated where there is no cost to pay for the gas, so is best related to projects where the

natural gas is being flared, and the existing operator is sharing in the profits from the fuels produced.

However if the gas is purchased at the current market price of $2 per MBtu, the net profit after all costs is

$8,900 per MMscf.

Note: The financials for this project have been calculated using $2 as the purchase price for the gas.

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Electricity

All of the facilities have been designed to generate their own electricity, minimising the operating costs of

the facilities and maximising revenues. The facility has been designed to produce 5MW of electricity for

the facilities own internal use.

In addition, the facility has also been designed to generate 10MW of electricity for export to the local grid

using recovered heat from the facility, and converting this into steam for electrical generation.

Price of Electricity

The price of electricity sold to the local grid for this project has been calculated at $0.08 per kw/hr.

Revenues per Unit

The following table shows the market prices that have been used to generate the revenues for this project.

Gas Cost Per MBTU

Cost of Gas - NG Henry Hub Price (Dec 15th 2010) per MBTU's $2.00

Oil Market Per Barrel

NYMEX Crude Oil (Futures December 15th 2010 ) $88.62

Refined Product Outputs Per Barrel

Diesel (Sale of Refined product) $101.91

Gasoline (Sale of Refined product) $101.91

LSR Naphtha (Sale of Refined product) $76.00

LPG (Refined product) $40.00

Other Revenues

Carbon Credit Value per MMBTU Processed $-

Electric Generation - price of sale per kW/h $0.08

Annual Revenues

The following table details the annual revenues generated from the project.

Revenue Stream Per Annum % of Revenues

Gasoline $39,298,677 76%

LSR Naphtha $1,758,382 3%

LPG $3,377,289 7%

Electricity $7,027,200 14%

Carbon Credits & Energy Credits $- 0%

Total Annual Revenues $51,461,548 100%

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Plant Capital and Implementation Costs

The cost of the proposed OSPRE GTL facility for this project processing 7.9MMscf of Natural Gas and

producing 1,300 barrels of fuel and 10 MW of exportable electricity is $70,280,000 per module.

Plant Operating Costs

The following table shows the estimated Annual Operating Costs of each Facility. All project costs have

been calculated to increase by 2.5% per annum to cover inflation from Year 3 onwards.

Operating Costs Per Annum

Total Staff & Central Costs $5,438,061

Total Gas Costs (at $2 per MBTU’s) $5,475,000

Total Professional Fees & Insurance $1,408,061

Total Ancillary Operating Costs $716,169

Total Maintenance Costs $4,217,029

Total Operating Costs $17,254,320

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Staffing Levels & Salaries

It is projected that the following numbers of staff will be employed within each facility. The salary levels

have been estimated, and will require validation from local market sources at the appropriate time.

Salaries

Employees Salary Cost

Hourly Employees Per Hour

Hourly Rate for Supervisor (A) $15.00

Hourly Rate for Technician (B) $10.00

Hourly Rate for Mechanic / Engineer (C) $7.00

Hourly Rate for General Staff (D) $5.00

Salaried Employees Per Annum

Plant Manager $80,000

Secretary $15,000

Accounting Clerk $30,000

Operations Manager $50,000

Quality Control Supervisor $30,000

Lab Technician $25,000

Note: The project has been calculated to increase staff costs by 2.5% per annum from year 3 onwards to

account for increases in living costs.

Staff benefits of 20% have also been included in the project costs to provide for healthcare and pension

benefits for staff as required.

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Staffing Levels per Shift at all Facilities

Each facility has been designed to be operated by minimal onsite staff. The onsite staff are primarily

monitoring production levels to ensure quality control. Each facility will also be monitored by the OSPRE

global operational unit to ensure correct maintenance levels are maintained and the facilities productivity

is at optimum levels.

The table below provides the anticipated staffing levels that will be required by each facility, and is included

for information purposes. It must be noted that these staffing levels may be subject to slight alteration

dependent upon site specific requirements.

Salaried Employees

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Total Number of Staff

Employed

Total Annual Salaries

Plant Manager 1 $80,000

Secretary 1 $15,000

Accounting Clerk 1 $30,000

Operations Manager 1 $50,000

Quality Control Supervisor 1 $30,000

Lab Technician 1 $25,000

Total Administrative Salaries 6 $230,000

Gas to Liquid Facility

No of Staff

per Shift

Total Number of Staff

Employed

Total Combined

Salaries

Shift Supervisor A 2 8 $350,400

Control Room Technician B 2 8 $233,600

Operator D 2 8 $116,800

Mechanic (Controls) C 2 8 $163,520

Totals 8 32 $864,320

Refinery Facility

No of Staff

per Shift

Total Number of Staff

Employed

Total Combined

Salaries

Shift Supervisor A 2 8 $350,400

Control Room Technician B 2 8 $233,600

Operator D 2 8 $116,800

Mechanic (General) C 2 8 $163,520

Totals 8 32 $864,320

Total Hourly Employees per shift 8

Total Number of Employees per facility 64


Project Timescales

The following chart has been included as an indication of the approximate timescales for the project.

Project

Timescales

(Months)

Front End Planning

Project Evaluation

& Project Initiation

Project Design

Equipment

Manufacture

On Site

Construction

Test & Operational

Readiness

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

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Revenue Projections by Type

There are several sources of revenue that can be generated from the OSPRE GTL process. The revenue generated by this project is shown below by type of

revenue generated.

LSR

3%

LPG

7%

Electricity

14%

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Carbon Credits &

Energy Credits

0%

Gasoline

76%


Summarised Financial Statement

The following 2 pages show the financial summary over the first 12 years of the project.

Year 1 2 3 4 5 6 7 8 9 10 11 12

Investment - equity $ 11,245,410 $ 2,811,353

Investment - Loan $ 44,981,640 $ 11,245,410

Investment - Total $ 56,227,050 $ 14,056,763

Debt Financing

Loan Outstanding inc Acc. Interest $ 44,981,640 $ 60,950,122 $ 54,177,886 $ 47,405,651 $ 40,633,415 $ 33,861,179 $ 27,088,943 $ 20,316,707 $ 13,544,472 $ 6,772,236 $ 0 $

0

Amortization of Loan over 10 years $ - $ 6,772,235.80 $ 6,772,235.80 $ 6,772,235.80 $ 6,772,235.80 $ 6,772,235.80 $ 6,772,235.80 $ 6,772,235.80 $ 6,772,235.80 $ 6,772,235.80

Revenues

Interest $ 4,876,010 $ 4,334,231 $ 3,792,452 $ 3,250,673 $ 2,708,894 $ 2,167,115 $ 1,625,337 $ 1,083,558 $ 541,779 $ 0 $

0

Debt Repayment $ 11,648,246 $ 11,106,467 $ 10,564,688 $ 10,022,909 $ 9,481,130 $ 8,939,351 $ 8,397,572 $ 7,855,794 $ 7,314,015 $ 0 $

0

Ebitda

Total revenues $ - $ 38,777,133 $ 51,461,548 $ 52,748,087 $ 54,066,789 $ 55,418,458 $ 56,803,920 $ 58,224,018 $ 59,679,618 $ 61,171,609 $ 62,700,899 $ 64,268,422

(-) Tax over sales $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $

-

Net Revenues $ - $ 38,777,133 $ 51,461,548 $ 52,748,087 $ 54,066,789 $ 55,418,458 $ 56,803,920 $ 58,224,018 $ 59,679,618 $ 61,171,609 $ 62,700,899 $ 64,268,422

Operational costs $ - $ 12,982,415 $ 17,254,320 $ 17,685,678 $ 18,091,738 $ 18,544,032 $ 19,007,633 $ 19,482,823 $ 19,969,894 $ 20,469,141 $ 20,980,870 $ 21,505,392

Ebitda $ - $ 25,794,718 $ 34,207,228 $ 35,062,409 $ 35,975,050 $ 36,874,427 $ 37,796,287 $ 38,741,194 $ 39,709,724 $ 40,702,467 $ 41,720,029 $

42,763,030

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Summarised Financial Statement (Continued)

Year 1 2 3 4 5 6 7 8 9 10 11 12

Amortization/Depreciation

Gross / Net Profits

Depreciation $ - $ 5,406,447 $ 5,406,447 $ 5,406,447 $ 5,406,447 $ 5,406,447 $ 5,406,447 $ 5,406,447 $ 5,406,447 $ 5,406,447 $ 5,406,447 $

5,406,447

Real Depreciation(*) $ 5,406,447 $ 5,274,583 $ 5,145,934 $ 5,020,424 $ 4,897,974 $ 4,778,511 $ 4,661,962 $ 4,548,256 $ 4,437,323 $ 4,329,096 $

4,223,508

(+) Net Revenues $ - $ 38,777,133 $ 51,461,548 $ 52,748,087 $ 54,066,789 $ 55,418,458 $ 56,803,920 $ 58,224,018 $ 59,679,618 $ 61,171,609 $ 62,700,899 $

64,268,422

(-) Operational costs $ - $ 12,982,415 $ 17,254,320 $ 17,685,678 $ 18,091,738 $ 18,544,032 $ 19,007,633 $ 19,482,823 $ 19,969,894 $ 20,469,141 $ 20,980,870 $

21,505,392

(-) Interest $ - $ 4,876,010 $ 4,334,231 $ 3,792,452 $ 3,250,673 $ 2,708,894 $ 2,167,115 $ 1,625,337 $ 1,083,558 $ 541,779 $ 0 $

0

(-) Amortization / Depreciation $ - $ 5,406,447 $ 5,274,583 $ 5,145,934 $ 5,020,424 $ 4,897,974 $ 4,778,511 $ 4,661,962 $ 4,548,256 $ 4,437,323 $ 4,329,096 $

4,223,508

Free Cash Flow

Gross profit $ - $ 15,512,261 $ 24,598,414 $ 26,124,022 $ 27,703,954 $ 29,267,558 $ 30,850,660 $ 32,453,895 $ 34,077,911 $ 35,723,366 $ 37,390,934 $

38,539,522

(-) Corporation Tax $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $

-

Net Profit $ - $ 15,512,261 $ 24,598,414 $ 26,124,022 $ 27,703,954 $ 29,267,558 $ 30,850,660 $ 32,453,895 $ 34,077,911 $ 35,723,366 $ 37,390,934 $

38,539,522

(+) Ebtida $ - $ 25,794,718 $ 34,207,228 $ 35,062,409 $ 35,975,050 $ 36,874,427 $ 37,796,287 $ 38,741,194 $ 39,709,724 $ 40,702,467 $ 41,720,029 $

42,763,030

(-) Loan Repayment $ - $ 11,648,246 $ 11,106,467 $ 10,564,688 $ 10,022,909 $ 9,481,130 $ 8,939,351 $ 8,397,572 $ 7,855,794 $ 7,314,015 $ 0 $

0

(-) Investment - Equity $ 11,245,410 $ 2,811,353 $ - $ - $ - $ - $ - $ - $ - $ - $ - $

-

(-) Corporation Tax $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $

-

NET Cash Flow $ -11,245,410 $ 11,335,120 $ 23,100,761 $ 24,497,721 $ 25,952,141 $ 27,393,296 $ 28,856,936 $ 30,343,622 $ 31,853,931 $ 33,388,453 $ 41,720,029 $

42,763,030

Accumulated Cash Flow $ -11,245,410 $ 89,710 $ 23,190,471 $ 47,688,192 $ 73,640,333 $ 101,033,629 $ 129,890,565 $ 160,234,188 $ 192,088,118 $ 225,476,571 $ 267,196,600 $

309,959,630

(*) The real value of depreciation in the long run

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Financial Conclusion

Internal Rate of Return

The Financial summary shows that the Internal Rate of Return is in excess of 140% for this project, based

upon a 20% equity investment, with 80% debt financing over 10 years.

EBITDA

The facility can generate an EBITDA in excess of $34 Million per annum.

Profits over the Project Life

Over the 30 year “operational-life” of the facility the “profit potential” from such a plant is anticipated to

be in excess of $1.079 Billion, therefore the investment return on this GTL facility is exceptional.

Investment Return

Investment in the project would be based upon returning the initial capital investment within the first 3-4

years, providing a strong income following the return of capital.

Depreciation

Depreciation of the capital asset has been calculated over 15 years.

Detailed Financials

The detailed financials that have been used in the creation of the financial summary and the assumptions

made are available for full review, as required.

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