Financing for the Bight of Benin natural gas liquids (NGL) project was signed 17 September. The project is notable for a number of reasons: it is an impressive $1.275 billion, it is the first time a financing based on a forward sale agreement has been undertaken on a Nigerian project, and three Nigerian banks joined as senior lenders.

Located off Nigeria's coast, in the Bight of Benin, the project is an expansion of the Nigerian National Petroleum Company (NNPC)-ExxonMobil joint venture's existing NGL extraction and fractionation operations and involves the construction and operation of an offshore NGL extraction platform, undersea pipeline infrastructure, and onshore fractionation and storage facilities.

Credit Suisse First Boston (CSFB) was financial adviser and sole international lender at the preliminary underwriting stage; though it is likely that it will sell down some of its commitment, particularly the uncovered portion. The bank has underwritten $575 million, of which $325 million is covered by a comprehensive OPIC guarantee, leaving $250 million uncovered.

Although it is unusual for a single bank to underwrite the lion's share of this kind of deal, particularly $250 million of uncovered Nigerian project debt, CSFB has worked with the sponsors in the region before. The NGL expansion deal is a legacy mandate from the first phase of the NGL project in 1995, when CSFB ran a $350 million bond, priced at 260bp.

Together with the strength of the sponsors and the NGL market, CSFB will have taken a view on the fact that the majority of the project infrastructure is offshore and therefore insulated from political risk. At present it is unclear whether the debt will be syndicated but recent civil unrest and media coverage of terrorist activity may hamper selldown.

Nevertheless, early indications from sources close to the bank are that CSFB is happy to hold the debt, which leads most observers to believe that the debt is attractively priced. And it is likely these perceived risks could be over-egged.

Three Nigerian banks, together providing $50 million, joined CSFB. The Nigerian tranche is thought to pay about 700bp. There is talk that a fourth Nigerian bank may join the group of United Bank Nigeria, United Bank for Africa and Standard Trust Bank - their commitment has been hailed as a landmark in the history of the participation of Nigerian banks in energy projects.

The balance of the debt, $650 million, was met by a sponsor loan from Exxon, ranking pari passu with the other senior lenders. The loans represent the first joint financing by NNPC and MPN since the 1991 Oso Condensate financing.

The financing structure is a Nigerian first, with the debt secured against future revenues with no hard asset security. Similar structures have been used successfully in South America - with the Ecopetrol deal in Columbia and the Cerro Negro deal Venezuela providing direct comparisons. Some of the long-term purchase agreements expire in around five years but lenders will be comfortable with the economics of the project, given that the JV is already operational in the region and that the NGL market is reasonably liquid. They are also likely to receive a premium for a debt secured on intangible future assets.

Exxon has a 51% share in the unincorporated JV and associated offtaker and NNPC 49%. The oil trading group, Vitol, has an agreement to export NNPC's share of the offtake. Mobil Producing Nigeria (MPN), a wholly-owned subsidiary of ExxonMobil, will operate the plant, which is expected to produce 185 million barrels of NGL during the project's lifetime.

The project will have a significant positive environmental impact - it is an additional oil recovery (AOR) project that will reduce gas flaring by pumping the gas back into the ground to help the extraction of oil and reduce carbon dioxide emissions. It will monetize currently flared gas in the East area of the JV, conserve lean gas for future additional monetization, add 300 million barrels NGL reserves and 40,000 barrels per day outside OPEC quota.

No EPC contractor has yet been named, although bids were being opened as Project Finance went to press. Construction is scheduled to begin in November, with the project coming online in 2008.

Bight of Benin NGL II
Status: Financing documents signed on 17 September. Award of EPC contracts imminent.
Size: $1.275 billion
Location: Offshore at Bight of Benin, and onshore at Bonny River terminal
Description: Expansion of existing NGL project including construction of an offshore NGL extraction platform, undersea pipeline and expansion of onshore fractionation and storage facilities.
Sponsors: NNPC (49%) MPN (51%)
Debt: $1.275 billion comprising: $575 million CSFB loan ($325 million of which is covered by a comprehensive OPIC guarantee); $50 million Nigerian bank loan; $650 million ExxonMobil loan
Lead arrangers: CSFB, United Bank Nigeria, United Bank for Africa and Standard Trust Bank
Legal counsel to the borrowers: Latham & Watkins
Legal counsel to the lenders: Milbank Tweed