The year started with nearly US$15bn in LNG financing completed. One more is getting innovative in order to reach the finish line. By Alison Healey.
Within two weeks in March, Sempra Infrastructure and Venture Global each closed massive project financings to back LNG export projects in Texas and Louisiana, respectively, while Tellurian has made progress and continues to aim for a final investment decision (FID) this year.
Port Arthur
After years of delays, fluctuations in cost, and amended contracts, Sempra Infrastructure Partners has reached an FID on Port Arthur LNG in Jefferson County, Texas after closing on a US$6.8bn term loan and US$200m working capital facility. The loan was priced at 200bp over SOFR during construction and 225bp thereafter, with Mizuho serving as lead arranger. Upfront fees to lenders amount to US$200m, Sempra said in a filing with the Securities and Exchange Commission (SEC). Interest rates are required to be hedged or the loans must have fixed interest rates for a minimum of 60% of the projected amount of term loans outstanding.
Mizuho served as administrative agent, with BBVA, Santander, Bank of America, Bank of China, Mizuho and RBC in agent roles. Additional leads include Credit Agricole, BayernLB, CaixaBank, CIBC, Citigroup, ICBC, ING, JP Morgan, KfW, MUFG, National Bank of Canada, Standard Chartered, SMBC, Scotiabank, and Wells Fargo.
The deal features a 20-year sculpted amortisation profile starting in the first full quarter after the completion of the project and designed to achieve a minimum projected fixed debt service coverage ratio of 1.4:1. according to filings. The sponsor plans to refinance the project loan with permanent debt when the project is complete.
Sempra closed on its joint venture with ConocoPhillips and agreed to sell a 25% to 49% indirect, non-controlling interest in the project to an infrastructure fund managed by KKR. ConocoPhillips acquired a 30% non-controlling interest in the project, is purchasing 5m tonnes per year of LNG under a 20-year sale and purchase agreement (SPA), and is managing the project's overall natural gas supply requirements with rights to participate in both equity and offtake for future expansion. The purchase price for ConocoPhillips was US$265m plus its pro rata equity share of project costs incurred after closing.
KKR is making its investment primarily through its Global Infrastructure Investors IV fund. Terms of the sale to KKR were outlined in an SEC filing from Sempra. KKR Denali Holdco agreed to acquire a minimum of 35.7% and up to 69.5% of the project, the equivalent to an indirect interest of a minimum of 25% and up to 48.7%. The KKR unit will pay a minimum of US$64m in cash for a 35.7% interest and up to US$125m if it elects to purchase the full 69.5% interest plus a pro rata equity share of development costs incurred prior to the closing that exceed US$439m.
The deal stipulates that Sempra Infrastructure will be the managing member of the partnership and will exclusively hold the right to make decisions on expansion. The company will have certain rights to preferential distributions from specified revenues and expansion true-up payments and will bear a higher allocation of certain capital contribution commitments in certain budgetary overrun scenarios. At closing, Sempra Infrastructure targets owning 20%–30% of the project.
Sempra has issued a final notice to proceed (NTP) under the project's engineering, procurement and construction (EPC) contract. Phase 1 of Port Arthur will include two natural gas liquefaction trains, two LNG storage tanks and associated facilities with a nameplate capacity of approximately 13m tonnes per year, with total capital expenditure estimated at US$13bn. Bechtel is the EPC contractor. It signed an amended US$10.5bn EPC contract last October.
The first phase of the project is fully contracted for 10.5m tonnes per year. In addition to the deal with ConocoPhillips, capacity is subscribed under binding long-term agreements with RWE, PKN Orlen, Ineos, and Engie. Sempra Infrastructure is also actively marketing and developing the project’s second phase, which is expected to have a similar offtake capacity to Phase 1. Sempra expects its share of Port Arthur’s average adjusted Ebitda after full commercial operations will be approximately US$410m annually and its equity commitment will be approximately US$1.5bn.
In response to analyst questions on a company conference call, Sempra CEO Justin Bird predicted that Port Arthur 2 will be the next in line to be financed, ahead of the company’s Vista Pacifico and ECA Phase 2 projects in Mexico. Citi advised Sempra on the transaction and JP Morgan Securities was adviser on the project financing. Last year ADIA bought a 10% non-controlling stake in Sempra Infrastructure for US$1.73bn.
Plaquemines LNG
Modular LNG developer Venture Global has reached FID and closed a US$7.8bn project financing for the second phase of the Plaquemines LNG project in Louisiana. ING, Santander, Mizuho, Scotia and SMBC were lead banks. Additional lenders include BBVA, Bank of America, Bank of China, Caixa Bank, Deutsche Bank, Goldman Sachs, ICBC, JP Morgan, LBBW, MUFG, Natixis, RBC, Wells Fargo, National Bank of Canada, KfW IPEX-Bank, Helaba, DZ Bank and Regions Bank.
The deal included a US$4.489bn six year construction financing and a US$1bn six year revolver. There was a US$1.665bn two year equity bridge loan from Bank of America, Caixa Bank, Deutsche Bank, Goldman Sachs, ING, Mizuho, RBC and Santander. Skadden Arps advised the lenders and Latham & Watkins advised the sponsor.
Proceeds will be combined with equity to fully fund the balance of construction and commissioning of the second phase of the 20m-tonnes-per-year project and Venture Global has issued a full notice to proceed to construction contractor KZJV, a joint venture between Zachry Group and KBR.
Plaquemines LNG phase two customers include ExxonMobil, Chevron, EnBW, New Fortress Energy, China Gas, Petronas, and Excelerate Energy. Marketing is under way for the company’s third facility, CP2 LNG, and SPAs have been signed with ExxonMobil, Chevron, EnBW, Inpex, China Gas and New Fortress Energy.
Plaquemines and CP2 will replicate the design of the company’s Calcasieu Pass project, also in Louisiana, which produced its first LNG 29 months after FID. The sponsor used modular trains to allow it to cut costs and begin production months earlier than expected. Venture Global is also developing carbon capture and sequestration (CCS) projects at each of its LNG facilities.
Phase one and two represent approximately US$21bn of investment. In May, Venture Global closed US$13.2bn in project financing for the initial phase of Plaquemines and the Gator Express pipeline. That loan was priced at SOFR plus 212.5bp.
S&P reported last month that the commissioning of the first phase of Calcasieu Pass was “the longest ever commissioning of a US liquefaction facility” which was “irking” some of its foundation customers, who believe the margins the operator has earned at the Louisiana facility over the last 12 months should have been theirs.
“The move to commercial service earlier would have eased the cost of filling their own consumption needs and given customers including Shell, Britain's BP, Spain's Repsol and Poland's PGNiG the ability to resell some supplies to capture the wide spread between what they would have been paying Venture Global and what they could have fetched for those volumes on the spot market.” S&P said. “Instead, the terminal has remained in commissioning status, with Venture Global able to capture those same margins.”
The project had shipped 138 cargoes from Calcasieu Pass as of March 21and may start servicing long-term contracts for some foundation customers in July and others in Q4 of this year, the report said.
Driftwood LNG
LNG developer Tellurian has faced a number of setbacks on its proposed Driftwood LNG project in Louisiana in recent years, particularly with regard to contracts, but continues to report that financial close is pending and that the project remains in discussions with potential offtakers in Europe and Asia.
In recent weeks, the sponsor agreed to sell the land for Driftwood for US$1bn and lease it back, the company said in an SEC filing. Tellurian entered a binding letter of intent with an undisclosed New York-based institutional investor under which its Driftwood LNG subsidiary would lease the property for 40 years. Terms of the lease include a capitalisation rate of 8.75%, annual rent escalators of 3%, and a requirement that Driftwood LNG post a letter of credit equal to 12 months' rent.
The lease requires Driftwood to secure additional equity investors for the project by July 14. Tellurian remains in talks with Japanese and Indian companies about potential investments in Driftwood, Nikkei Asia reported last week, citing remarks from Tellurian chief executive Octavio Simoes. The company is in contact with oil majors and upstream companies, seeking investments from two to three companies.
In February, Tellurian co-founder Charif Souki said Driftwood LNG needed to raise US$1.5bn in mezzanine financing, US$7bn in project debt, and about US$3.2bn in equity. The first phase of the project will have a capacity of roughly 11m tonnes per year and is expected to be scaled up to 27.6m tonnes per year. Last year, Shell and Vitol cancelled sale and purchase agreements for Driftwood that totalled 6m tonnes per year. The project still has a 10-year SPA with Gunvor for 3m tonnes per year but Gunvor can walk away from the deal since financial close was not reached by a February 28 deadline.
Rio Grande LNG
NextDecade has amended its EPC contract with Bechtel for the first three trains of the Rio Grande LNG export facility at the Port of Brownsville, Texas that extends the price validity of the contracts to June 15, the company said in an SEC filing.
NextDecade is targeting a final investment decision (FID) on the first three trains by the end of Q2, with FIDs on the remaining trains to follow.
NextDecade estimates the aggregate lump-sum EPC cost to construct the first three trains at approximately US$11.5bn and final pricing will be determined prior to the FID.
Last year, the sponsor approached 25 project banks about funding Rio Grande with a US$12bn seven-year loan and MUFG is believed to be advising on debt financing.
The first three trains will produce roughly 16m tonnes per year. In January, NextDecade signed a 15-year sale and purchase agreement with Japan’s Itochu for LNG from Rio Grande. The sponsor previously signed a 20-year SPA with ENN LNG (Singapore) for 1.5mtpa, Engie for 1.75mtpa, and ExxonMobil, China's Guangdong Energy, and China Gas, for 1mtpa each.
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