The $200 million senior secured revolving credit for independent upstream oil and gas exploration/production company Salamander Energy, refinanced an existing bridge loan – arranged in 2008 by BNP Paribas for the acquisition of GFI Oil and Gas Corporation – and fully funds operating and capital costs on Salamander's assets. At seven years, the deal features the longest tenor for such a facility in South East Asia.

The $200 million seven-year deal has a two-year grace period and then reduces semi-annually. The deal is a project life borrowing base with a significant bullet, as opposed to a loan life borrowing base, and therefore recognises value of the assets beyond the tenor of the loan. It can also be extended beyond its seven-year tenor if certain financial and production milestones are achieved, and be added to with new assets over time.

The borrowing base amount is calculated using a project life NPV (discounted at the cost of debt) divided by a project life coverage ratio (PLCR) of 1.5x. The PLCR ensures that the debt is always covered by 1.5x the future cash flow available for debt service in each period.

The project life NPV is calculated as the NPV of the net operating cash flow generated from each of the borrowing base assets, adjusted by a 12 months capex add-back and cash add-back.

For the purpose of determining the PLCR, the revenue generated from the borrowing base assets is based upon an independent technical forecast of reserves and production profiles.

The borrowing base amount is limited by a 25% reserve tail requirement (expected to occur in December 2014), which forces full repayment of the facility before the final maturity date. Recalculation of the borrowing base amount occurs every 6 months based on prevailing economic assumptions and every 12 months based on technical assumptions recommended by the independent technical consultant and approved by the majority lenders.

The Salamander borrowing base has a complex asset ownership structure: a 5% interest in the CNOOC-operated South East Sumatra field, Indonesia; a 5% interest in the BP-operated Offshore North West Java field, Indonesia; a 9.5% interest in the Hess-operated Sinphuhorm (PhuHorm) concessions onshore Thailand; a 35% interest in the SericaEnergy-operated Kambuna field located offshore North Sumatra, Indonesia; and a 60% interest, upon transfer from current concession holder SOCO, in Block B8/38 and the Bualuang field located offshore in the Gulf of Thailand.

Given the complexity of the asset base, lenders benefit from a full share charge and asset level security package, including security over the revenue streams through secured project accounts. Revenues from the sale of oil or gas from the assets are also aggregated and escrowed in an account held with the lenders, and allocated according to a cash waterfall priority pre-agreed with Salamander.

Salamander Energy (SE Asia) Ltd
Status: Signed 13 June 2008
Sponsor: Salamander Energy Plc (100%)
Mandated lead arrangers: BNP Paribas, IFC, Natixis, HSBC
Participants: ING
Sponsor legal counsel: Ashurst
Lender legal counsel: Herbert Smith
Technical adviser to lenders: RPS Energy