Ras Laffan Liquefied Natural Gas (3) rating raised to ‘AA-’; outlook stable

S P Global Ratings has raised its long-term issue rating on Ras Laffan Liquefied Natural Gas Co. Ltd. (3) (RL3)’s senior secured debt by one notch to AA-’ from A ’ and removed it from under criteria observation (UCO), with stable outlook.

“The stable outlook reflects our expectation that RL will generate strong consolidated cash flow to fully service and repay all its senior debt over the next five years, with a robust debt service cushion of above 1 x under our base-case scenario,” the ratings agency said.

Ras Laffan Liquefied Natural Gas Co. Ltd. (II) (RLII) and Ras Laffan Liquefied Natural Gas Co. Ltd. (3) (RL3) ( collectively, RL) are gas extraction and liquefied natural gas (LNG) production facilities in

Qatar (AA Stable A-1 ). The two entities were set up to enter into limited recourse financing to design, build, and operate LNG trains 3, , and 5 for RLII, and trains and for RL3, with production capacity of 1 .1 million metric tons per year and 15. metric tons per year, respectively. The debt proceeds refinanced RLII’s construction costs and funded RL3’s remaining construction activities, which were fully completed in 2011 following the completion of train .

As of Dec. 31, 2022, RL3 had 1.9 billion of outstanding bonds and senior debt ranking pari passu and maturing in September 202 , while RLII has been free of debt since September 2020.

RL generates cash flow predominantly from the sale of LNG under sale and purchase agreements (SPAs). These are largely take-or-pay arrangements with LNG importers in Europe, Asia, and the U.S. Additional revenue comes from the sale of condensates and liquefied petroleum gas (LPG).

The sale prices are linked to oil and gas commodity prices, thereby exposing the project to price volatility. RLII and RL3 are both 0 owned by QatarEnergy (AA Stable --) and 30 owned by Exxon Mobil

Corp. (AA- Stable A-1 ). The two entities guarantee each other’s debt and are operationally linked. Accordingly, S P Global Ratings calculates their annual DSCRs on a consolidated basis.

The S P rating action follows the revision of its project finance criteria.

“The project issue rating was previously weak-linked to the long-term counterparty credit rating on Citibank N.A., the bank account provider, thus constraining our rating on RL3’s debt. Under the revised criteria, the project is not capped anymore by the rating on Citibank N.A., given RL3 has in place active health checks and monitoring for all relationship banks and would be able to find an alternative bank in a short time without affecting the project’s cash flow and liquidity. This is reinforced by the strong relationships the company has with international and local banks,” it said.

“We expect Brent price for the next two years to be around 0- 90 bbl. We revised up our short-term oil price assumptions versus our previous base case assumptions to 90 bbl in 2023 and

0 bbl in 202 , from our previous estimates of 5 bbl in 2023 and 55 bbl in 202 . We have also revised our short-term TTF assumptions upward since our last review on the project with TTF

to 30 mmbtu for 2023 and 25 mmbtu for 202 , from our previous estimates of 25 mmbtu and 15 mmbtu, respectively. Incorporating the updated forecasts into our base case leads us to anticipate that RL will generate higher-than-expected cash flow in the near term.”

According to S P, the project’s operational performance continues to be strong, with trains’ availability in line with the agency’s base-case expectations.

“The average LNG train availability in 2022 was close to 95 , which demonstrates a solid operational achievement. The project also had another strong year in terms of safety performance, with both the total recordable and lost time incident rates well below the industry’s benchmark. In 2022, RL sold its entire 29. million tons of LNG capacity, which supports our expectation of stable production.

The project continues to sell the majority of its LNG under long-term contracts. Its exposure to spot sales is limited and largely linked to RL’s ability to benefit from pricing arbitrate. Our expectation of stable production is also supported by the projects’ strong historical operational performance, which has demonstrated an excellent safety and availability track record since operations began.”