DOHA: Fitch Ratings has affirmed Dolphin Energy Limited’s (DEL) $1,250m 5.888 percent bonds at ‘A+’; Outlook Stable. The Ratings Agency has also affirmed DEL’s $1,300m 5.5 percent secured bonds at ‘A+’; Outlook Stable.
The $1,250m bond is due June 15, 2019 and the $1,300m bond is due December 15, 2021.
The affirmation reflects the strong results achieved by DEL in 2013 and Fitch’s expectation of the company continuing its stable operating and revenue performance. Robust operational performance, high commodity prices and strong gas demand in the UAE and Oman during 2013 resulted in an annual debt service coverage ratio (DSCR) of 4.42x, well in excess of the Fitch base case of 3.27x. Fitch’s base case projects average and minimum DSCRs at 4.38x and 2.75x respectively over the life of the debt. The ratings are constrained to the ‘A’ category, notably by counterparty risk and the project’s single-facility nature.
The ratings agency yesterday noted the DEL is assessed as Stronger in respect of revenue risk. The project’s long-term fixed-price gas supply contracts (now also including the former capacity payment payable by ADWEC for the Taweelah Fujairah pipeline) account for around 40 percent of DEL’s gross margin. Such solid revenue base is a material stabilising factor that mitigates DEL’s exposure to commodity prices in respect of upstream revenues and interruptible gas sales.
Fitch’s base case uses moderate price assumptions for liquids (long-term Brent price of $80/bbl) and does not take into account in its analysis the EBITDA contribution from the sale of third-party gas bought by DEL from Qatar Petroleum (QP). These sales are viewed as an addition to DEL’s business and in Fitch’s opinion do not worsen the project’s risk profile, as DEL essentially acts as an intermediary between QP and the offtakers of third-party gas and the additional volumes do not weigh on the project’s technical risk profile.
The third-party gas business increases DEL’s exposure to counterparty risk, which Fitch assesses as Midrange. The relative weakness of some DEL’s natural gas offtakers is mitigated by DEL’s competitive gas price, which provides the offtaker with a strong incentive to perform.
Fitch assesses DEL’s operational risk as Midrange, as the project’s facilities are fairly complex but have been performing strongly, as evidenced by DEL’s ability to consistently meet the maximum production targets under a development and production sharing agreement. DEL’s operating costs have been either in line or below expectations, and the company currently does not expect extraordinary maintenance works.
DEL has commenced work for the addition of three additional compressors at its Ras Laffan plant (six are already in operation) to increase the export pipeline’s capacity to its 3.2bcfd maximum. In connection with this, the capacity of the pipeline delivering QP’s gas to DEL’s plant will also be enhanced.
Fitch is unlikely to upgrade DEL’s ratings given the single-site nature of the project’s processing facilities in Ras Laffan and the single subsea export pipeline. On the other hand, DEL’s ratings would come under downward pressure should the project experience major operating problems, if there is a severe reduction in the length of the production plateau or a material deterioration in the credit quality of Abu Dhabi, the main market for DEL’s natural gas, and Qatar. Source: Peninsula