At $14 billion in commitments, the PNG LNG project financing – the largest pure project debt facility to date in the energy sector – taps a diverse set of funding sources including both tied and untied export credit agency facilities, a 16-strong club of commercial banks providing uncovered debt and sponsor co-financing.

The $18 billion project (inclusive of financing costs) involves delivering a vertically integrated LNG development, comprising a 6.6 million tonnes-per-year (mtpa) liquefaction plant and 724km of onshore and offshore pipelines, as well as upstream development and associated infrastructure. Production is expected from late 2013 or early 2014. The offtakers are Tokyo Electric Power Company and Osaka Gas, CPC Corp of Taiwan and China Petroleum & Chemical Corp.

Esso Highlands, an ExxonMobil wholly-owned subsidiary, is the project operator, and is leading the construction and LNG marketing of the project. The equity group comprises ExxonMobil (33%), Oil Search (29%), Santos (14%), the PNG government (16%), Nippon Oil Corp (5%), PNG landowners through Mineral Resources Development Company (2.8%) and Petromin PNG Holdings (0.2%).

The sponsors finalized the term sheet in July 2009 and lender commitments signed in December 2009. The response was such that plans to partially bond finance the project were dropped and the final deal is a multisourced mix of ECAs providing guarantees/insurance and/or direct loans, commercial lenders providing direct loans as part of an uncovered tranche and/or ECA cover and ExxonMobil co-lending.

The 17-year ECA debt breaks down as follows: US-Exim is providing $3 billion, JBIC is providing $1.8 billion, Australia's EFIC is providing $350 million, SACE is providing $900 million, NEXI is providing $950 million and China-Exim $1.3 billion. ExxonMobil will co-lend $3.75 billion, which is distributed across the facilities on a pro rata basis, following the terms of each facility.

The $1.95 billion uncovered commercial debt is provided by National Australia Bank, ANZ, Westpac, Commonwealth Bank of Australia, Bank of Tokyo Mitsubishi UFJ, Sumitomo Mitsui Banking Corp, BNP Paribas, Calyon, China Development Bank, Credit Industriel et Commercial, DnB NOR Bank, Intesa Sanpaolo, Mizuho Corporate Bank, Natixis, Societe Generale, Standard Chartered Bank and UniCredit. The loan has a 15-year tenor with pricing starting at 325bp over Libor, rising to 400bp after the 4.5-year construction period and stepping up to 425bp between years 9 and 15.

Both the ECA direct loans and the commercial debt piece were oversubscribed. The ECAs could have gone higher than the allocations they came out with (for instance, China-Exim indicated that it could go as high as $2 billion and EFIC as high as $500 million), and the commercial piece was oversubscribed by $1 billion, or just under 50%.

While the financial adviser Societe Generale knew the ECA share could be upped in the name of securing cheaper money, it was decided that it would be impolitic to do so. After lengthy discussion Socgen contacted every party individually to determine how far they would be comfortable to be scaled back. Final allocations on the commercial debt range from $50 million to just over $200 million, with the majority of tickets in the $75 million to $150 million range.

The deal features a well-developed commercial structure designed to ensure a workable risk-sharing mechanism between project sponsors and lenders. To cover construction/completion risk, the sponsor group has provided a completion guarantee that works in such a way that stronger members of the group can cover those that may be in danger of default. Offtake risk has a natural hedge through the diversity of the offtake group, and Exxon's central presence on the deal has been seen from the start as mitigating any possible operation risk.

The most significant risk for lenders was that of Papua New Guinea – a B-rated economy that has suffered from periods of political instability in the past. This aspect of risk is largely mitigated by the fact that the PNG government is a member of the equity group, and that there is a stakeholder benefit agreement in place that spotlights local stakeholder gains, thereby largely mitigating country risk through economic incentive.

Papua New Guinea LNG
Status: Loan agreements signed 15 December 2009; financial close 15 March 2010
Description: $14 billion debt financing of a $17 billion 6.6 million tonnes-per-year LNG facility in Papua New Guinea
Sponsors: ExxonMobil (33.2%), Oil Search (29%), Santos (13.5%), the PNG government (16.6%), Nippon Oil Corp (4.7%), PNG landowners through Mineral Resources Development Company (2.8%) and Petromin PNG Holdings (0.2%)
Financial adviser to the sponsors: Societe Generale
Mandated lead arrangers: NAB, ANZ, Westpac, CBA, BTMU, SMBC, BNP Paribas, Calyon, China Development Bank, CIC, DnB NOR Bank, Intesa Sanpaolo, Mizuho Corporate Bank, Natixis, Societe Generale, Standard Chartered Bank and UniCredit
ECAs/Multilaterals: JBIC, EFIC, US-Exim, SACE, China-Exim, NEXI
Legal advisers to the sponsors: Sullivan & Cromwell, Allens Arthur Robinson
Legal advisers to the lenders: Latham & Watkins, Blake Dawson
Legal advisers to ECAs/Multilaterals: Latham & Watkins, Blake Dawson
Consultants: Shaw (technical); D'Appolonia (E&S); NSAI (reserves); Gas Strategies (market); Control Risks (security); Miller (insurance); Poten & Partners (shipping)
Model Audit: PKF