Singapore Project, Energy and Infrastructure Finance partner James Orme was recently quoted in “Inpex’s Investment in Muara Laboh, Indonesia Geothermal,” an article published by leading project and infrastructure finance journal IJGlobal, which discusses Indonesia’s geothermal market and in particular, the growth of both primary and secondary market financing and M&A in the sector.
Addressing what is seen as slow growth of geothermal capacity in Asia as compared with solar and wind developments, Mr. Orme explained this may be the result of the challenges in addressing upfront development issues, such as proving up reserves, drilling and exploration risks, and also lender requirements that geothermal production wells usually need to be capable of supplying at least 25% of the required geothermal resource prior to the funding of senior loans.
In response to suggestions that geothermal was a natural fit for the oil and gas industry to diversify into, Mr. Orme, who has advised extensively in both sectors, was able to offer clarification. He noted that while both the geothermal and oil and gas industries share a somewhat similar approach to exploration risk allocation, some crossover in technology between the drilling rig contractors in both industries and while, “there are some – at a conceptual level – some similarities in the project documents and finance agreements between the two industries…the bespoke risks associated with financing an oil and gas project mean there is not a lot of overlap with debt papers seen in geothermal financing.” He also noted another key difference: geothermal projects are subject to long-term PPAs whereas there is often a higher tolerance for spot or short-term offtake contracts for oil and gas projects.
Though oil and gas developers may not be immune to the challenges all developers face on the primary geothermal market, there are opportunities to diversify via the secondary market as evidenced by Japan oil and gas major Inpex’s acquisition of additional equity interest in Supreme Energy Sumatera, owner of the Muara Laboh geothermal project. Milbank’s team, led by Mr. Orme, advised Supreme Energy and a separate team led by James Murray advised the project company.
Mr. Orme regularly advises on project and acquisition financings and M&A transactions in the Indonesian energy sector, including renewable and conventional power and oil and gas, leveraging his cross-sector and cross-practice experience to provide insights and advice to conventional energy companies seeking to decarbonize and diversify their portfolios.
To read the full article in IJGlobal click here.
Additional insights from James Orme can be found at the following links:
"Hydrogen – A Catalyst For The Energy Transition"
Energy Transition in Asia-Pacific: It’s Gettin’ Hot In Here
Milbank Partner James Orme Discusses Energy Transition Challenges in Asia
