Kosmos Energy closed the $750 million financing backing its share of the development of phase 1 of the offshore Jubilee oil field in Ghana on 13 July. The developer formally received Ghanaian government approval for the Jubilee field phase 1 development plan and unitisation agreement the following day, enabling it to draw down the debt.

Kosmos is a US-based independent oil and gas developer with equity backing from Warburg Pincus and Blackstone. The company is the technical operator for development of Jubilee phase 1 and holds a 23.491% interest, along with Tullow Oil (34.705%), Anadarko Petroleum (23.491%), Sabre Oil and Gas (2.813%), EO Group (1.750%) and Ghana National Petroleum Corp (GNPC – 13.750% after exercising its back-in rights for field development).

The Jubilee field is located on the West Cape Three Points Block and adjacent Deepwater Tano Block. The development is based on a conventional subsea design located in approximately 1,300m of water using a turret-moored floating production, storage and offloading vessel (FPSO).

The phase-one development plan calls for up to 17 wells, five water injection wells and three gas injection wells. The development process has been designed so that the gas produced will be available for export to shore and/or reinjected into the reservoir, eliminating gas flaring. Kosmos estimates that the Jubilee Field could potentially hold recoverable oil and gas reserves of between 650 million barrels to 2 billion barrels of oil equivalent.

To date, Kosmos has funded development with equity – in 2008 Warburg Pincus and Blackstone added $500 million to the $300 million that they and Kosmos management had already invested. However, Standard Chartered has been working with Kosmos since November 2008 to structure a long-term reserves-based debt financing.

The Kosmos facility follows Tullow Oil's $2 billion seven-year reserves-based combined refinancing and additional borrowing facility in March, which also funded its share of Jubilee. Kosmos does not have the corporate clout of Tullow or the cross-collateralisation from existing assets in Tullow's deal structure, and although BNP Paribas, Calyon, Societe Generale, Standard Chartered and the IFC have lent to both deals, debt pricing is around 150-200bp higher than the Tullow facility.

The $750 million seven-year loan is split into a senior tranche of $600 million and a junior tranche of $150 million. The bank club, with each taking an average of $100 million, comprises the IFC, Africa Finance Corporation (AFC), Societe Generale, Calyon, Cordiant Capital, ABSA, BNP Paribas and Standard Chartered.

All banks participated in the senior debt, but only the IFC, BNP Paribas, Standard Chartered and AFC took a piece of the higher-priced sub-debt.
Pricing starts at 500bp over Libor for the senior debt, rising to 550bp over term. The junior debt starts at 650bp over Libor, rising to 700bp over term. Clifford Chance advised the lenders, and Slaughter & May advised Kosmos.

The financing is a hybrid borrowing base/project financing. The $600 million senior debt is secured against proven and probable reserves, whereas the $150 million junior debt, which is essentially a bolt-on debt-service facility, is unsecured. The deal includes an early-draw tranche of up to $300 million that Kosmos can access immediately, having now received the Ghanaian government's approval for the field.

The bank price deck for 1P reserves stands at around $35 per barrel. Some value was given to 2P reserves. The deal is fully hedged, with all banks taking part of the hedge in line with their degrees of commitment.

The financing has suffered delays because of the Ghanaian government's lack of comfort with the reserves-based security structure. Unlike the Tullow financing, where the borrowing was against a diverse portfolio of producing assets and proven reserves, the Kosmos financing is backed by a single asset. But the financing relies on production figures of 120,000bpd and wells tapped to date indicate production as high as 500,000bpd.

Consequently, Kosmos could not put financing in place without knowledge of imminent government approval for the field's development.

Because of the uncertainty over the timescale for the government approvals during the deal's structuring the project has been closed with a start date of January 2011, but Kosmos now expects first oil by July 2010.

Lack of government approvals has held back a number of financings for the Jubilee field. Even Tullow had been unable to draw down the $800-$900 million of its $2 billion facility that had been linked to Jubilee reserves, until it received approval on 8 July.

The potential upcoming sale of Kosmos' Jubilee stake may also have been a factor in the slowness of government licensing. Kosmos has mandated Standard Chartered and Barclays to organise the sale and the Ghanaian government has indicated its interest in buying the share for GNPC. Bankers speculate that government may have taken even longer had the sale been imminent so that it could review the new owner.

The debt will be unaffected by the sale, if it goes ahead. However, some of the potential buyers – Shell, Chevron, ExxonMobil, Eni, Oil & Natural Gas Corporation and CNOOC – are unlikely to need a project financing priced at over 500bp.

Kosmos Energy
Status: Financial close 13 July 2009
Description: Reserves-based debt facility for development of Jubilee oil field in Ghana
Sponsor: Kosmos Energy
Total debt: $750 million
Financial adviser: Credit Suisse
Mandated lead arrangers: Standard Chartered (global coordinator, co-technical and modelling bank and senior facility agent), BNP Paribas (security trustee, junior facility agent and hedging coordinator), Societe Generale, (lead technical and modelling bank), IFC, Absa Bank, Africa Finance Corporation, Calyon and Cordiant Emerging Loan Fund III
Sponsor legal counsel: Slaughter & May
Lender legal counsel: Clifford Chance