The assignment of the final rating follows the completion of the issuance and receipt of documents conforming to the information previously received. The final rating is the same as the expected rating assigned on Feb. 7.
The ratings and Outlook are supported by DEL's position as a key long-term, low-cost gas supplier to the UAE in the context of the growing gas deficit in Abu Dhabi and Dubai. This importance is reflected in the Abu Dhabi government's 51 percent covenanted shareholding in DEL through Mubadala Development Company.
The core commercial strength of the project is the existence of long-term fixed-price sales contracts for the vast majority of the gas. These contracts, the cost recovery and revenue sharing terms in the upstream production contract and fixed pipeline capacity payments provide a significant cushion against market risk.
The project has been fully operational since April 2008 and has performed broadly within the sponsor's expectations and above Fitch's base case. DEL experienced technical problems with its two sulfur recovery units (SRU) during 2011. This had only a modest, temporary impact on production. Fitch understands that a failure analysis has been undertaken by DEL and the remedial actions identified have been partly implemented with the remainder of such remedial actions to be completed in Q1, 2012. Comfort is gained from DEL's ability, if necessary, to operate at full capacity with one unit while remediation works are undertaken simultaneously on the other SRU.
Financial performance has been strong, driven by high oil prices, additional third-party gas volumes and good operating cost control. The actual DSCR was 3.28x in December 2011 and 3.23x in December 2010 compared to 2.41x in Fitch's base case.
Refinancing risk on the $1,300 million bullet bonds and associated shareholder debt is adequately mitigated by the introduction of a sinking fund, which would fully repay the bullet amounts in Fitch's base case and cover more than 80 percent in Fitch's stress case.
DEL plans to drill three additional wells if required to extend the production plateau from 2027 to 2032. These are considered low risk by the reserve consultant and will produce from proved reserves. Any refinancing of the bullet bonds should be able to be comfortably amortized by 2027 thus giving an effective tail of five years on the plateau production profile, upstream production contract and gas sales contracts.
The ratings are constrained by the single site nature of DEL's processing facilities in Ras Laffan, and by the single subsea export pipeline and receiving facilities. In addition, DEL's liquids production is fully exported through the Strait of Hormuz. Fitch considers a blockade of the shipping of hydrocarbons through the Strait unlikely. However, should such an event occur, the project's operations would be negatively affected as production would be curtailed until shipping routes are restored. Under this scenario, the debt service reserve would allow DEL to meet debt service payments for at least six months. DEL's ratings would come under downward pressure should there be major operating problems at Ras Laffan, a material reduction in the length of the production plateau or a reduction in the credit quality of Abu Dhabi or Qatar.
DEL operates a large oil and gas project extracting gas from offshore fields in Qatar, processing it at Ras Laffan in Qatar and then exporting around 2 billion cubic feet a day of clean gas via a 364 km subsea pipeline to Abu Dhabi for onward sale in the UAE and Oman, mostly under long-term contracts. The project also produces a significant amount of condensate and liquefied petroleum gas, which are by-products of the gas processing.
