Merlin’s Services

Commercially-focused technical advisory to the
LNG and process industries

Merlin Advisors provides project feasibility, capital cost estimating, benchmarking, owner’s engineering, investor and lender due diligence and technology assessments. Together, Poten & Partners and Merlin Advisors have an unparalleled depth and breadth of experience across all facets of the LNG business, including market fundamentals, commercial strategy, shipping, and technology and engineering.

A list of Merlin’s core strengths and services are listed below. Please expand each item for additional details.

Merlin Advisors provides construction and operations monitoring services across the full LNG supply chain: liquefaction, shipping, pipeline, Regasification. Merlin has provided monitoring services for major LNG liquefaction projects, interstate pipelines, Onshore regasification and FSRUs.

Following the technical due diligence reports during the pre-FID phase of the development, Merlin is usually retained to monitor the investment on behalf of the lenders and provide timely reports and advice on the project performance. Merlin technical expertise, project management experience and familiarity with the project are an invaluable service for the financial community and venture shareholders.

Merlin Advisors assists project equity and financing participants in evaluating project viability. The analysis and results are tailored to client needs. The most common first step is to develop a preliminary Basis of Design for the specific project being evaluated. Merlin LNG Capital Cost Estimate ModelsTM are fundamental to establishing the preliminary Basis of Design and to preparing an initial cost estimate.

A series of agreed sensitivity tests are then undertaken to optimize the Basis of Design. Sensitivity options include:

  • Greenfield or expansion project;
  • Liquefaction technology;
  • Refrigerant compressor drivers;
  • Power generation;
  • Cooling systems;
  • Storage tanks forLNG and liquids;
  • Liquids extraction facilities;
  • Marine facilities;
  • Labor costs and productivity; and
  • Make up of project team.

These sensitivity studies are conducted quickly and are used to develop an optimized Basis of Design or set of BODs that cover the full range of anticipated project requirements.

LNG projects are extremely capital intensive; requiring a very long period of capital expenditure during the design, procurement and construction phases before there is any income. Due to size and complexity, they are almost always multi-participant ventures. Since the large investment exceeds the internal funding capabilities of all but the very largest oil companies, it is very common for ventures to turn to project financing.

The main source of comfort to investing or financing participants are project’s firm long-term Sales and Purchase Agreements. But these alone are not adequate. The producer must be able to meet its sales commitment with agreed upon quality LNG and the buyer must be able to pay for the product. In between, the shipping arrangements must be able to deliver the product in an expeditious and reliable manner. The loan’s only collateral value is essentially the sales revenue generated after the plant begins operation.

  • Technical due diligence assesses the likelihood of an on-time project start-up as well as its subsequent reliability and production capability, which is of particular interest when new technologies are being introduced;
  • Merlin’s LNG ShippingTM model evaluates the adequacy of transportation arrangements; and
  • Our commercial knowledge can assess the quality of contract terms in the Sales and Purchase Agreements and the ability of the buyer(s) to perform.

This is an invaluable service for the financial community and venture shareholders. Merlin is happy to present conclusions in your offices.

Merlin Advisors has a large, detailed database of existing LNG project costs, including actual purchase orders and sub-contract costs. This extensive database provides critical inputs for Merlin’s proprietary LNG Capital Cost Estimate ModelsTM for the entire LNG supply chain, including:

  • LNG Capital/OperatingTM;
  • LNG ShippingTM;
  • LNG Import Terminal; and
  • Power Generation.

The Merlin LNG Capital Cost Estimate ModelsTM database includes actual LNG-specific cost data for liquefaction trains ranging in size from as small as 2.5 MMt/y to as large as 6 MMt/y. It includes actual equipment lists for all projects in the database.

  • For train sizes not represented, costs are interpolated between the next smaller and the next larger ones. Given the relatively small increments between train sizes in the database, this methodology has proved to be highly accurate.
  • Actual equipment costs are updated quarterly to a new basis year using industry cost escalation indices, to reflect inflationary cost increases for oil and gas equipment and materials.
  • Site-specific labor rates and productivities are from Merlin’s database supplemented by industry construction labor cost data.

The project-specific input for the Merlin ModelsTM is developed in a short time period allowing a high accuracy cost estimate to be provided quickly and cost effectively.

Merlin Advisors provides technical consulting services across the full spectrum of energy production, transmission and end-user industries. Merlin has developed a massive database through work performed for technology licensors, project developers and project finance institutions. We have a broad and detailed database covering the most LNG process technologies.

Merlin has provided process engineering and cost estimating benchmarking studies for all the major LNG liquefaction licensors as part of their ongoing optimization efforts.

Merlin has utilized and supplemented this proprietary database in project finance support for existing and on-going LNG projects.

The most detailed work involves developing a fully-detailed process simulation for a proposed project for each of the process technologies of interest with capital cost estimates.

At the other extreme, we provide energy and material balances for the envelope around the liquefaction unit, developing only enough information to specify major equipment components to be used for more detailed cost estimates.

These efforts can support project development or simply provide an often needed and strategic “independent” review.

Merlin Advisors provides technical expertise and project management skills on behalf of the project owner. These services typically include:

  • Undertaking project pre-feasibility studies:
  • Crafting a Request For Proposal for Front End Engineering Design;
  • Selecting of FEED contractors;
  • Preparing of bid documentation for EPC invitation;
  • Selecting of preferred contractor:
  • Assisting in contract negotiations;
  • Reviewing engineering drawings, specifications and documentation;
  • Monitoring contractor performance; and
  • Overseeing project performance testing.

Merlin’s participation as Owner’s Engineer is typically for one segment of a LNG project chain, but this can be expanded depending on Owner’s participation and needs.

Merlin Advisors offer technical education in several areas. We have developed and taught an LNG Technology course at several client locations and the Topsides Facilities Design Module for the Tension Leg Platform Design course sponsored by the ASME Offshore Mechanics & Arctic Engineering Division as part of the Offshore Technology Conference held annually in Houston. We have an intensive Offshore Process Facility Design Course presented over a 2 week period that we have taught in numerous locations worldwide. We have taught the “Fundamentals of Base-Load LNG” for Gas Technology Institute numerous times using our own course materials. We have a proprietary course that covers all aspects of the full LNG chain from gas production through the import terminal.  We have a proprietary course on Project Finance that we have presented on several occasions.

The Operator and Prime Contractor usually place emphasis on achieving on-time and under-cost project completion, but do not always provide contingency planning until a crisis develops. The project execution plan as agreed between Operator and Prime Contractoris usually realistic for the specified assumptions but is probably neither optimistic nor pessimistic. It is often described as having a 50% probability of being achieved within budget and schedule, but this means there is a 50% probability of exceeding budget and not being completed on time. In addition to cost and schedule variance, the other major project risk exposure is reliability and production capability.

Merlin Advisors provides a set of risk criteria or a band of predicted outcomes. Although the full spectrum of project probabilities are developed, we typically report:

  • Mean non-exceedance probability data (similar to the project’s 50% probability case);
  • 75% non-exceedance case (often called “Most Likely Scenario”) assumes average industry problems, engineering judgment for added project costs due to site-specific issues; and
  • 95% non-exceedance probability case (often called “Worst Case Scenario”) assumes a high frequency and duration of problem occurrences.

Merlin’s risk analysis is a must-have for the financing community and frequently justified for equity participants lacking the requisite internal LNG technical expertise and an up-to-datedatabase of project costs.

Joint use of an independent consultant by both sellers and buyers helps eliminate internal disagreements and can greatly assist in negotiating LNG Sales and Purchase Agreements.