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Finance
Contribution to the Flame of Excellence at Qalhat LNG.
Summary of
Project Financing
The total development, construction, and start-up costs for the
Qalhat LNG Project was estimated at approximately US$720 million. To
fund the project on the basis of a debt: equity ratio of 90:10,
Qalhat LNG raised US$648 million of third party limited recourse
debt finance under a commercial bank term loan facility with
floating interest rate arrangement (together with a revolving letter
of credit facility of up to US$40 million for funding the term loan
facility debt service reserve requirement), with the balance of
approximately US$72 million provided by way of shareholder equity.
Qalhat LNG has taken a conservative approach to financing the
project by removing or significantly mitigating many of the risks
normally associated with LNG financings:
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The sponsors are
providing a Debt Service Undertaking until project
completion to remove residual concerns over plant
construction, cost overruns and initial delivery of LNG. |
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Qalhat LNG has
contracted a majority of the plant capacity on a long-term
basis with creditworthy and diverse off takers. |
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A majority of
the off take pricing is based on Brent and JCC, with a small
portion linked to Henry Hub. All of which are well
understood and existing indexes. |
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The feed gas
price is Brent based (with a floor and cap), therefore
strongly correlated to the majority of the off take price. |
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The Qalhat LNG
Project is economically competitive on a cost basis
regardless of the contractual floor prices. |
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Only contracted,
long-term, sales volumes have been considered in the
financing Base Case although significant unsold capacity is
available, in certain periods, for spot and medium-term
sales. |
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The financing
tenor is shorter than the main project agreements providing
a “tail” in extreme downside scenarios. |
Due
to this conservative structure, the project economics were robust
and remain so in various downside scenarios. As a result, the
financing was substantially oversubscribed and financial
documentation was agreed with an initial MLA group of only 7 banks
in just 19 business days.
From a project finance perspective, the Qalhat LNG project financing
contained a number of market innovations, namely:
- 90:10
debt-to-equity ratio, the first for an LNG project financing in
the Middle East.
- 25%
balloon with cash sweep extending the average loan life to 10.5
years.
- No Export Credit
Agency involvement.
- No Sabotage &
Terrorism insurance.
- No Direct
Agreement with provider of shipping services
Overall Project
Cost
The project was completed ahead of schedule and well below budget.
The Ready For Start UP (RFSU) was actually achieved on 13th November
2005 as opposed to planned 1st December 2005. With a Flawless
Start-up campaign the LNG rundown was achieved within 9 days and 2
hours setting a record of its kind. With all these achievements QLNG
was able to produce its first cargo in December 2005 and sell it at
lucrative spot market, generating early cash to the project.
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