American Oil and Gas Reporter - November 2015 - 71

ty tiebacks would be credited to the
benchmark for attaining the final tier. With
the producer group sharing in benefits of
third-party tiebacks-both through the tariff structure and through their equity
ownership in the project companies-ArcLight not only gained the wherewithal to
add incremental revenue streams, thereby
potentially improving returns, but also
turned its customers into motivated marketers of Delta House capacity to the industry.
The production handling agreements
also addressed a number of contingencies
that the parties believed were unlikely, but
had to be addressed contractually. Examples include:
* An uninsured catastrophic loss either during construction or several years
after production had been established;
* Unavailability of insurance; or
* A change of law during construction
that could delay project startup significantly.
The specific solutions to these possibilities are confidential, but a creative solution was found in each case. The parties
also included "toggles" in the tariff structure tied to the outcome of certain binary
events-for example, whether ArcLight
successfully obtained debt financing for
the project companies, and whether certain adjacent reserves were developed and
delivered to competing hosts.
These and other innovative contract
features ultimately were critical components of successfully executing the Delta
House project. Along with the creativity
and durability of the individual commercial points, this success is a testament to
LLOG's and ArcLight's transparent, open
approach to a large and complex commercial transaction.
Since the original Delta House transaction, LLOG has drilled a number of delineation wells, and reserve estimates for
the three anchor fields have more than doubled. In addition, another operator has executed an agreement to bring an additional discovery for processing at Delta
House, and LLOG has made an addition-

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In the annual Natural Gas White
Papers special reports, guest authors
analyze the state of the industry heading into the 2015-16 heating season,
and explain why there may be a silver lining on the intermediate-term
horizon for producers. Features also
document one operator's gamechanging efficiency improvements
using advanced automation solutions.

al discovery that will flow to Delta House.
ArcLight also was able to secure bank financing for 50 percent of the capital of the
Delta House FPS. These changes have increased ArcLight's expected return.
From the producer group's perspective,
the Delta House transaction allowed early sanctioning (prior to full delineation)
and reduced capital (compared with a project fully funded by the producers). These
benefits, along with the increased reserves, likewise have substantially increased producer returns.
The parties to the Delta House transaction deliberately set out to design a winwin arrangement, which represents a
unique way of doing business between
producers and midstream providers, and
resulted in an innovative commercial and
financing arrangement. Not only have their
efforts proven to be successful, but they
have established a framework for future
transactions in the deepwater Gulf of
Mexico.
r
RICK FOWLER has been the vice
president of deepwater projects for
LLOG Exploration Company since
2007. During his career, he has been
involved in multiple Gulf developments using both floating production
systems and subsea tiebacks. Prior to
joining LLOG, Fowler was employed
by Dominion Exploration & Production and Exxon in various operational
and supervisory assignments. He holds
a B.S. in mechanical engineering from
Tulane University.

JOHN F. ERHARD is a partner at
ArcLight Capital Partners in Boston.
He joined ArcLight in 2001 and has 16
years of energy finance and private equity experience. Erhard began his career at Schroders, where he focused on
mergers and acquisitions. He earned
a B.A. in economics from Princeton
University and J.D. from Harvard
Law School.

ADAM N. KUHNLEY is a director
at ArcLight Capital Partners. He
joined ArcLight in 2007 and has nine
years of energy finance and private equity experience. Prior to joining ArcLight, Kuhnley was an analyst at
Simmons & Company International,
where he focused on mergers and acquisitions for companies in the upstream, midstream, downstream, and
oil field service sectors of the energy
industry. Kuhnley earned a B.B.A. in
finance with a minor in accounting
from the University of Texas at Austin.
NOVEMBER 2015 71

American Oil and Gas Reporter - November 2015

Table of Contents for the Digital Edition of American Oil and Gas Reporter - November 2015