A partnership of Qatar Petroleum (QP) and ExxonMobil signed a US$10.4 billion deal for the Barzan gas project on 13 December, marking the close of the largest global project financing of 2011 and the largest ever in Qatar.

The project is an upstream gas exploration and extraction facility, expected to produce around 1.4 billion cubic feet per day (bcf/day) of natural gas products. QP is also the offtaker for the project’s production under a fixed-price contract.

The deal closed in spite of a number of delays and adverse economic conditions. The financing closed with 31 commercial lenders, four export credit agencies (ECAs), significant Islamic debt facilities and a corporate loan from the minority stakeholder.

Despite the Eurozone crisis, the commercial debt was substantially over-subscribed and a number of European banks were able to lend, which included the largest uncovered bank debt tranche to date for a project in the region. Despite ubiquitous constraints on credit – as evidenced by the absence of French and Spanish lenders – the project demonstrates not only an international readiness of liquidity for the right projects, but also an increased level of comfort for dollar-denominated loans to projects in the Gulf and cross-border regional lending.

According to a source close to the banks, “The most notable thing about this deal was that it got done against a backdrop of seriously volatile market conditions.”

Financing details

The sponsor is a partnership of state-run QP, which holds the majority 93 per cent stake, and Exxon Mobil which holds the remainder. Exxon also acted as a lender on the deal.

RBS was financial adviser to the sponsor. White & Case was legal counsel to the sponsor. Skadden Arps advised the banks. Allen & Overy advised on the ECA loans.

The financing includes US$7.25 billion in debt with the remaining project costs, about 30 per cent, coming from sponsor equity.

The debt comprises:

• A US$3.34 billion commercial, unwrapped tranche of bank debt provided by a club of 31 lenders (listed below)
• US$850 million in loans provided by Islamic lenders
• A US$600 million direct loan from the Japan Bank for International Cooperation (JBIC)
• A US$600 million B-loan provided by commercial banks and wrapped by JBIC and Nippon Export and Investment Insurance (NEXI)
• A US$700 million direct loan from Korea’s export credit agency KEXIM Bank
• A US$300 million B-loan commercial bank tranche wrapped by KEXIM
• A US$355 million bank tranche guaranteed by Italian export credit agency Servizi Assicurativi del Commercio Estero (SACE)
• A co-loan of US$507 million provided by Exxon Mobil. The loan is pro-rated to the size of Exxon’s equity commitment, thus accounting for around seven per cent of the total debt

The ECA credit is priced at 130bps over Libor for the full term of the loan.

The unwrapped commercial debt and Islamic tranches have a 16-year maturity with margins starting at 130bps during construction to match the ECA debt profile; the spread then steps up to 175bps for years one to four of operation; 190bps in years five to eight; and then 200bps to maturity.

The Japanese and Korean guarantees come with the usual caveats of equipment supply and EPC contracts for domestic companies.

According to a source close to the borrower, the unwrapped bank piece was scaled down from US$4.9 billion to the US$3.34 billion achieved at signing as a result of oversubscription. “The bank debt was sized by the amount of ECA financing which could be attained and by the amount of equity the sponsor was able to commit.”

Some of the bank lenders halved their ticket sizes before close. “For the most part, the European lenders wanted to reduce their commitments,” he says, “whereas the regional GCC lenders wanted to retain the larger ticket sizes, so it worked out very well for everyone.”

Nonetheless, of the unwrapped debt, 25 per cent was provided by European lenders (HSBC, Standard Chartered, RBS, Barclays, KfW and Siemens Financial). Asian lenders provided 32 per cent; seven per cent came from the US; and the remaining 36 per cent came from Gulf regional lenders.

The project documentation includes plans for a portion of bond debt, but an issue will not be pursued until the capital markets can offer more attractive terms. A future bond issue may be used to take out the commercial piece before its pricing begins to ramp up, if the available spreads are sweet enough.

Project scope

Japan’s JGC Corporation holds the EPC contract for the onshore production; Korea’s Hyundai is EPC contractor for the offshore production. Qatar state LNG company RasGas has the O&M contract.

Barzan will produce around 1.4 bcf/day of natural gas from both onshore and offshore facilities. It is also expected to produce around 100,000 barrels/day of condensate. The project will process butane and propane for LNG export and will also provide gas supplies to Qatari domestic industrial users.

Construction is due to begin immediately and the first of two units is expected to begin production in 2014; the second will be a year later and will increase production to 2 bcf/day.

A third phase is also planned, bringing production up to 2.5 bcf/day and expanding the extra-modal transportation facilities and access to the units, though the bond refinancing is likely to come first.

The lenders at a glance

Commercial banks:

• Al Khaleej Commercial Bank
• APICORP
• ANZ
• Bank of America
• Bank of Tokyo Mitsubishi
• Barclays Capital
• Citibank
• Commercial Bank of Qatar
• DNB Nor
• Doha Bank
• HSBC
• International Bank of Qatar
• JP Morgan Chase
• KFW
• Mizuho
• National Bank of Abu Dhabi
• Qatar National Bank
• Riyad Bank
• Royal Bank of Scotland
• Samba
• Siemens Financial Services
• Standard Chartered
• Sumitomo Mitsui
• Union National Bank

Commercial banks on ECA tranches:

• Barwa Bank
• Credit Suisse
• Masref al-Rayan
• West LB
• Qatar International Islamic Bank
• Qatar Islamic Bank

Export Credit Agencies:

• JBIC
• KEXIM
• NEXI
• SACE