International and regional banks were invited to submit their ideas and proposals to Dolphin Energyfor meeting its near- and longer-term debt financing requirements by Tony Boon, Dolphin's head of project finance, at the MEED Middle East Project Finance conference on 5 October.

'We are in data receiving mode and are interested to hear from the market,' he said, speaking on the conference sidelines. 'We are parallel tracking our options: we could opt to pursue permanent project financing designed to include a tranche from JBIC [Japan Bank for International Co-operation]; a permanent project financing without JBIC; or look at a bridge to completion.'

He stressed that the current high oil prices have brought considerable financial flexibility to the project sponsors, Abu Dhabi's Mubadala Development Company, with 51 per cent, France's Total, with 24.5 per cent, and the US' Occidental Petroleum, also with 24.5 per cent. 'We are in a position where we can deploy equity finance until a more attractive alternative is available,' he said.

Dolphin's $1,360 million, five-year bridge facility was signed on 3 October in Abu Dhabi. 'We secured the bridge at very attractive pricing, and we will continue with our plans to raise an Islamically structured bridge facility and a bridge loan from conventional international banks,' said Boon. 'But we have no intention of paying more than we did for the bridge facility from the local banks.' The first bridge had a margin of 45 basis points (bp) for the first 18 months, rising to 60 bp for the next 18 months and to 75 bp for the remaining two years.

The current plan anticipates raising additional bridge financing of approximately $800 million from a combination of the Islamic market and the conventional international market. The final size of the remaining bridges will be determined by bank appetite and the desire to maintain a 70:30 debt/equity ratio. 'The future bridge facilities will have the same tenor but will probably be structured on an arranger/underwriter basis, rather than as a large club,' said Boon. Preliminary information memoranda for the next two tranches of bridge financing are expected to be issued by the end of the first quarter of 2005.

The capital expenditure profile of the project - and the debt and equity already committed - dictate that fresh finance will not be needed before July 2005. The securing of additional tightly priced, five-year bridge finance would reinforce the option of taking the bridge-to-completion approach, though the likelihood is that the banks participating would be revisited to discuss the pricing step-ups.

Other financing options include security structures based on the future flow of revenues from liquid sales - the same project component that underlies the potential $850 million financing tranche from JBIC. Also, both Occidental and Total are contemplating providing shareholder loans, on a pari passu basis, either alongside the existing and future bridge facilities, or a future permanent project finance structure, providing additional latitude to the Dolphin sponsors.

'We are delighted that JBIC would consider playing a prominent role in our long-term financing plans, but there are potential costs - economic and strategic - associated with this approach that must be factored into the equation and resolved,' said Boon. 'Discussions over the next six weeks with JBIC and Japanese commercial entities must provide some clarity on this. Given the liquidity in the capital markets, the financial flexibility of our shareholders, who are clearly comfortable with a bridge-to-completion scenario, a potential role for JBIC in Dolphin's financing structure could well depend on how much Japan wants to do the deal.'