Fitch Affirms Dolphin Energy's bonds at 'A+'; Outlook Stable

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 $370m 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.