OREANDA-NEWS. December 15, 2015. Fitch Ratings says that the ratings of the Middle Eastern oil and gas projects Ras Laffan Liquefied Natural Gas Company Limited II and Ras Laffan Liquefied Natural Gas Company Limited 3 (together RasGas) and Dolphin Energy Limited (DEL) can withstand oil prices of USD 30/bbl or below.

Both projects have high financial flexibility to weather the current market downturn, supported by their favourable competitive positions. Both projects benefit from strong sponsors and sound economics. We assume that if required, sponsors will provide liquidity advances to support the projects during temporary market downturns due to the strong long-term project economics.

As Fitch rates through the cycle, we do not currently anticipate negative rating actions. Our reference cycle sees higher prices inducing new supplies, which then push prices below historical norms and to a pricing trough, followed by another cycle of increasing prices and production volumes. The ratings consider these fluctuations through the cycle.

RasGas (A+/ Stable)
RasGas is exposed to the impact of oil prices on all its revenues. Revenues from condensates and other oil products represent about one third of total revenues and are directly affected by oil price movements. The pricing formulas in long-term LNG sale and purchase agreements moderate the impact of oil prices declines on the remaining two thirds of RasGas's revenues. Given the lack of detailed information on the terms of the LNG sale and purchase agreements, Fitch's projections conservatively assume LNG prices at 0.1x to oil prices.

Under our updated oil price decks (see 'Oil and Gas Price Assumptions November 2015' dated 9 November 2015 on www.fitchratings.com), the stress case Brent oil price is forecast at USD45/bbl in 2016, USD50/bbl in 2017, and remains unchanged at USD55/bbl over the long-term. Using these updated stress case price levels our rating case generates an average debt service coverage ratio (DSCR) of 4.7x during 2015-2020 with a minimum of 2.68x in December 2019, when around USD1bn bullet debt will be due for repayment.

Fitch calculates that RasGas would be able to fully meet such debt service commitment out of cashflows generated in 2019 if oil and LNG prices are at least USD35/bbl and USD3.5MMBTU respectively. These price levels represent a conservative estimate of breakeven resiliency, reflecting conservative assumptions for LNG prices and stresses to operating costs, output levels and stable tax and royalty calculations. We also estimate a break-even oil price in 2016-2018 of USD27/bbl, which is equivalent to a LNG price of USD2.7/MMBTU.

Additional resilience also comes from RasGas's significant de-leveraging. After the 2019 bullet repayment, outstanding debt will be USD2.8bn with substantially lower debt service requirements until the final maturity in 2027. Average DSCR over the entire debt life until 2027 under the Fitch rating case is 8x.

Based on 9M15 results, RasGas has performed above Fitch's base case projections.

DEL (A+/Stable)
Only a portion of DEL's revenues is exposed to oil prices as the project's long-term gas supply contracts currently account for over 40% of gross margin. The long-term gas supply contracts at fixed prices substantially mitigate DEL's exposure to oil prices from upstream revenues. DEL can withstand significant oil price declines and is able to break even at an oil price of USD1.3/bbl. Under our rating case which factors in stressed oil price levels, DEL has an average DSCR of 3.64x with a minimum of 2.35x.