Barzan Gas: Liquidity in an illiquid market


Despite perceived illiquidity in the international bank market, Qatar Petroleum (QP) and ExxonMobil, along with financial advisor Royal Bank of Scotland, have reached financial close on the $10.3 billion Barzan gas project – Qatar’s biggest project financing to date.

The $7.25 billion debt facilities closed with a major oversubscription and a highly competitively priced mix of long term ECA and commercial bank debt: Margins range between 130bp over Libor and 200bp over the 16 year term.

The project is now fully funded on a 70/30 debt-to-equity ratio and plans for a complementary bond deal have been put on hold until the bond market becomes more competitive. The project documentation contains provisions for a bond, which can thus be launched at relatively short notice to get the best pricing.

The financing pulled in $4.9 billion of commitments from 27 lenders for the $3.34 billion uncovered tranche, with oversubscription allowing some European banks to scale back by up to 45%. That scale-back in turn enabled GCC lenders, many of which did not want to reduce their takes, to retain their original positions.

The deal demonstrates both the dollar liquidity in the GCC banking sector and the growing willingness of those banks to lend to cross-border projects. In addition, despite a lack of French bank participation – reflective of the troubles in the eurozone – the geographic spread of lenders still shows a strong European bank presence with 25% of the pre-scale back debt coming from Europe, 32% from Asia, 36% from the GCC and 7% from the US.

The project will produce 1.4 billion cubic feet per day of natural gas from onshore and offshore processing facilities, primarily to meet growing demand for feedstock from Qatar’s power sector - Qatar plans to boost domestic production of gas to 4 billion cubic feet by 2015, up from 2.8 billion cubic feet per day. Barzan will also provide natural gas to fuel water desalination plants and other industrial users in Qatar, while processing propane and butane for export.

The gas will be supplied from Qatar's North Field – the largest offshore non-associated gas field in the world - and state-controlled LNG producer RasGas will manage and operate the plant. The first gas production line is expected to become operational in 2014 with the second in 2015.

QP is offtaker for the project under a fixed price contract. However, that agreement is not take-or-pay, a risk mitigated in the deal’s structure by a volume support mechanism. And although the typical sponsor completion guarantees fall away, they only fall away once demand from the domestic market for the project has been proven.

The 16-year debt is split between an ECA-backed tranche of $2.55 billion, an $850 million Islamic tranche - the largest by QP to date - and a $3.34 billion uncovered commercial tranche – also the largest uncovered facility in the GCC to date.

The ECA facility is split between $1.3 billion in direct export credit agency loans from JBIC ($600 million) and Kexim ($700 million) and $1.25 billion in covered loans from Nexi ($600 million), Kexim ($300 million) and Sace ($355 million)..The JBIC/Nexi and Kexim support is on the back of onshore EPC contractor JGC Corporation and offshore EPC contractor Hyundai respectively.

ExxonMobil is also providing a sponsor loan to the project on a pro rata basis to its 7% equity stake – shadowing 7% of each debt tranche and thereby providing a total of $507 million.

The lenders to the uncovered and export credit agency facilities are: Al Khalij Commercial Bank, APICORP, ANZ, Bank of America, BTMU, Barclays Capital, Citi, Commercial Bank of Qatar, DnB, Dohar Bank, International Bank of Qatar, JP Morgan Chase, HSBC, KfW, Mizuho, National Bank of Abu Dhabi, Qatar National Bank, Riyad Bank, RBS, Samba, Siemens Financial Services, Standard Chartered, SMBC, UNB, EDC, Credit Suisse and WestLB (the last two lent only on the Kexim and Sace tranches).

The Islamic tranche participants are Barwa, Masraf Al Rayan, Qatar International Islamic Bank and Qatar Islamic Bank. The uncovered and Isalmic tranches are priced at 130bp pre-completion, 175bp for the first four years in operation, 190bp for the next four years, then 200bp to term. Upfront fees are 150bp. The ECA tranche is priced at a flat 130bp.

Barzan Gas Development
Status: Financial close 13 December 2011
Size: $7.25 billion
Sponsors: Qatar Petroleum (93%), ExxonMobil (7%)
Financial adviser: RBS
Commercial lenders: Al Khalij Commercial Bank, APICORP, ANZ, Bank of America, BTMU, Barclays Capital, Citi, Commercial Bank of Qatar, DnB, Dohar Bank, International Bank of Qatar, JP Morgan Chase, HSBC, KfW, Mizuho, National Bank of Abu Dhabi, Qatar National Bank, Riyad Bank, RBS, Samba, Siemens Financial Services, Standard Chartered, SMBC, UNB, EDC, Credit Suisse
Islamic lenders: Barwa, Masraf Al Rayan, Qatar International Islamic Bank and Qatar Islamic Bank
ECAs: JBIC, Kexim, Sace, Nexi
Sponsor legal counsel: White & Case
Bank legal counsel: Skadden Arps
ECA legal counsel: Allen & Overy
FEED study consultants: Chiyoda, J Ray McDermott