TEXT-Fitch affirms Dolphin Energy bonds at 'A+', outlook is stable

Tue Feb 5, 2013 12:03pm EST

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Feb 5 - Fitch Ratings has affirmed Dolphin Energy Limited's (DEL) bonds, as
follows:

USD1,250m 5.888% secured bonds due 15 June 2019: affirmed at 'A+'; Outlook
Stable
USD1,300m 5.500% secured bonds due 15 December 2021: affirmed at 'A+'; Outlook
Stable

The affirmation reflects DEL's continued solid performance through 2012. The
lack of material operational issues, high commodity prices and strong gas demand
in the UAE and Oman resulted in an annual DSCR of 5.68x, well in excess of the
updated Fitch base case of 4.3x. The Stable Outlook is supported by the
project's solid fundamentals based on a trend of increasing gas demand in the
region and DEL's resilience to severe commodity price downturn scenarios.
Fitch's base case projection has a minimum debt service coverage ratio (DSCR) of
around 2.5x over the life of the debt.

Fitch assesses the gross revenue risk factor for DEL as Stronger. This view is
supported by a solid revenue base reflecting DEL's long-term fixed price gas
supply contracts and the capacity payment for the Taweelah Fujairah pipeline,
accounting for around 50% of total revenues. DEL's exposure to commodity prices
in respect of its share of upstream revenues and interruptible gas sales is
mitigated by the low break-even levels and the use of conservative price
assumptions in Fitch's base case. Furthermore, the agency does not take into
account in its analysis the EBITDA contribution from the sale of interruptible
third party gas bought by DEL from Qatar Petroleum ("QP") to supply customers in
the UAE.

The prices associated with interruptible third party gas volumes are materially
higher than those charged under DEL's long-term contracts. These sales are
viewed as an addition to DEL's business and in Fitch's opinion do not increase
the project's risk profile, as DEL acts essentially as an intermediary between
QP and the offtakers of interruptible third party gas and the additional volumes
do not weigh on the project's technical risk profile.

The interruptible third party gas business increases DEL's exposure to
counterparty risk, which Fitch assesses as Midrange. In Fitch's view the credit
quality of some of the natural gas offtakers, notably Dubai Supply Authority
(DUSUP) and Sharjah Electricity and Water Authority (SEWA), is weaker than that
of the project. This is mitigated in the case of DUSUP, by the extremely
competitive price under the long-term contract with DEL, which provides the
offtaker with a strong incentive to perform. More generally, the growing natural
gas deficit in the markets served by DEL makes the project's reliable gas supply
essential to the local economies and supports Fitch's view that DEL would be
able to find alternative customers if required. Furthermore, any stress
resulting from a payment default is adequately mitigated by the project's strong
liquidity position.

Fitch assesses DEL's operational risk as Midrange, as the project's facilities
are based on proven technology and processes. DEL's technical performance has
historically been strong, as shown by its ability to consistently meet the
maximum production targets under the DPSA. Previous issues, namely the signs of
corrosion in one of the two offshore pipelines and the condenser failures at the
two sulphur recovery units have been effectively addressed or are under control,
and DEL does not currently foresee the need for extraordinary maintenance works.

DEL is in advanced planning for the addition of three compressors at its Ras
Laffan plant in order to increase the export pipeline's capacity to its 3.2bcfd
maximum. The investment is budgeted at around USD370m and will be funded by
sponsor cash flow without raising additional debt at this stage. The new
compressors are scheduled to enter operation during H214 and Fitch believes that
operations will not be significantly impacted during the installation period on
the basis of DEL's experience and the possibility of carrying out works during
scheduled maintenance or off-peak periods.

Fitch assesses DEL's debt structure as Midrange, reflecting the complexity of
the project's structure (upstream-midstream split, dual waterfall etc.) together
with relatively strong structural features. Refinancing risk related to the 2021
bullet bond and associated shareholder debt is largely addressed by a sinking
fund which traps 100% of the refinancing requirement in Fitch's base case. In
Fitch's stress case, the mechanism traps more than 80% of the bullet.

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 was a severe
reduction in the length of the production plateau or a material reduction in the
credit quality of Abu Dhabi or Qatar. In addition, DEL's liquid production is
entirely exported through the Straits of Hormuz. Fitch considers a blockade of
the shipping of hydrocarbons through the Straits unlikely. However, should this
occur, the project's production would be curtailed until shipping routes are
restored, and the rating would consequently come under pressure. Nevertheless,
even under this scenario, the debt service reserve would allow DEL to continue
to meet debt service payments for at least six months.


Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable criteria, 'Rating Criteria for Infrastructure and Project Finance',
dated 11 July 2012 are available at www.fitchratings.com.

Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
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