Transaction Update: Ras Laffan

Liquefied Natural Gas Co. Ltd. (II)

Primary Credit Analyst:
Rachel C Goult, Paris (33) 06-2009-1284; rachel.goult@spglobal.com

Secondary Contacts:
Tommy J Trask, Dubai (971) 4-372-7151; tommy.trask@spglobal.com
Michela Bariletti, London (44) 20-7176-3804; michela.bariletti@spglobal.com
Andrey Nikolaev, CFA, Paris (33) 1-4420-7329; andrey.nikolaev@spglobal.com

Table Of Contents

Project Description

Rationale

Liquidity

Outlook

Our Operations Phase Base Case And Downside Case Assumptions

Operations Update

Project Counterparties

Other Modifiers Update

Ratings Score Snapshot

Related Criteria

Related Research

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Transaction Update: Ras Laffan Liquefied Natural
Gas Co. Ltd. (II)
Credit Rating(s)
Senior Secured
US$1.4 bil 5.298% sr secd bnds ser A due 09/30/2020
Foreign Currency A/Stable
Guarantor Ras Laffan Liquefied Natural Gas Co.
Ltd. (3)
*Unless otherwise noted, all ratings in this report are global scale ratings. S&P Global Ratings’ credit ratings on the global scale are comparable
across countries. S&P Global Ratings’ credit ratings on a national scale are relative to obligors or obligations within that specific country.

Project Description
Qatar-based Ras Laffan Liquefied Natural Gas Co. Ltd. (II) (RLII) and Ras Laffan Liquefied Natural Gas Co. Ltd. (3)
(RL3) are liquefied natural gas (LNG) production facilities in the State of Qatar (AA-/Negative/A-1+). The two entities,
collectively known as RL, were set up to enter into limited recourse financings for the purpose of designing, building,
and operating liquefied natural gas (LNG) trains 3, 4, and 5 (in the case of RLII), and trains 6 and 7 (in the case of RL3),
with a design production capacity of 14.1 million metric tons per annum (mtpa) and 15.6 mtpa production capacity,
respectively. The debt issuance was used to refinance the construction costs of RLII, and to fund the remaining
construction activities of RL3, which were fully completed in 2011 following the completion of train 7. RL currently has
a total of $4.3 billion senior debt outstanding (rated and unrated), comprising $908 million at RLII and $3.4 billion at
RL3.

Cash flows are generated predominantly from the sale of liquefied natural gas (LNG) under sale and purchase
agreement (SPAs) with importers of LNG in Europe, Asia and the U.S. Other revenues come from the sale of
condensates and liquefied petroleum gas (LPG). The sale price of all products are linked to oil and gas commodity
prices and are therefore exposed to price volatility.

RLII and RL3 are both owned 70% by Qatar Petroleum (QP; foreign currency AA-/Negative/--) and 30% owned by
Exxon Mobil Corp. (AA+/Negative/A-1+). The two entities guarantee each other's debt and are operationally linked.
Accordingly, we calculate all ratios on a consolidated basis.

Rationale
The 'A' issue credit ratings on the senior secured debt reflect the complexity of operating large-scale LNG facilities, as
well as RL's moderate market risk due to its exposure to inherently volatile commodity prices, which is partially
mitigated by medium- and long-term take-or-pay SPAs that provide about 70% of total revenues. The SPAs cover
virtually all of RL's 30 million tons of annual LNG production and help mitigate the risk of short-term price fluctuations
due to the rolling oil and gas benchmark price indexation. Our expectation of stable production is supported by the
projects' strong historical operational performance, which has demonstrated an excellent safety and availability

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 Transaction Update: Ras Laffan Liquefied Natural Gas Co. Ltd. (II)

track-record since operations began. The combined average LNG train availability in 2017 was 97.8% and annual
availability has typically been substantially above the design target of 95.6% for RL3 and 96.0% for RLII since
operations began.

The robust operational performance is supported by RL's low operating cost structure, which boosts its competitive
position in the market. RL has access to Qatar's North Field gas field, which is one of the largest non-associated gas
fields in the world and provides RL with a near-certain supply of feedstock at low cost. The North Field has
recoverable reserves of more than 900 trillion standard cubic feet, or approximately 10% of the world's known
reserves. RL's low production cost is aided by economies of scale of its large production facilities and access to an
experienced and low-cost workforce. Additionally, RL's shareholders, Qatar Petroleum (70%) and ExxonMobil (30%),
each have more than 20 years of experience in the LNG sector, providing knowledge that supports strong operational
performance across the production and marketing activities. Furthermore, RL's cost base benefits from its access to a
fleet of 27 LNG ships in three classes, which keeps down the cost of delivery and ensures shipping availability.

The ratings reflect the strength of RL's financial performance, both under our base case and downside case scenarios.
We forecast robust annual debt service coverage ratios (ADSCR) under our base of 3.3x minimum and 10.6x average,
based on our long-term Brent crude oil and Zeebrugge hub gas price assumptions of $55 per barrel (bbl) and $4 per
million Btu (mmBtu). The minimum occurs in 2019, the year in which RL repays RL3's $879 million bullet maturity. RL
does not have a track record of refinancing debt at maturity and our rating does not factor in any new debt issuance.

We apply a one-notch uplift to long-term issue ratings to reflect the robust average ratio, which could strengthen
further after the bullet repayment. We also apply a two-notch uplift to reflect the project's robust performance under
our downside analysis, a reflection of RL's low cost base. We forecast the project's oil breakeven prices to be around
$US15/bbl.

The positive rating drivers are offset by the single-asset nature of the five LNG trains, which exposes the project to
production risk in the event of a significant force majeure incident, albeit this is partially mitigated by insurance. The
insurance contract has a $1.0 million deductible and a maximum loss amount of $2.0 billion, which are acceptable
terms for the industry. The plant's location in the Middle East also exposes the project to geopolitical risk, if regional
volatility were to temporarily impair production and deliveries beyond the six months of support provided by the debt
service reserve account.

Transaction Structure
• Parent linkage: Delinked

• Structural protection: Neutral

Liquidity
We assess RL's liquidity as neutral. RL's liquidity is supported by a funded debt-service reserve account covering six
months of future debt service. We do not view negatively the lack of major maintenance reserve account. Operations
and maintenance of the facilities are carried out by Qatargas, which passes the maintenance responsibility of large

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 Transaction Update: Ras Laffan Liquefied Natural Gas Co. Ltd. (II)

equipment items down to General Electric under a 10-year long-term maintenance contract.

Under the Common Security Agreement (CSA), RL is required to fund all debt service (both principal and interest),
including principal bullet maturities, on a six-month forward-looking basis, before making any distribution to
shareholders. This reflects the project's prudent financial structure, in our view. RL3 fully repaid its US$750 mil 5.832%
senior secured bonds series C in September 2016, as due. RL3's next significant bullet repayment falls due in
September 2019 and totals $879 million (comprising the $615 million 6.75% G series bonds and $264 million of
shareholder co-loans).

Outlook
The stable outlooks reflect our expectation that RLII and RL3 will generate strong consolidated cash flows to enable
full repayment of the US$879 million 2019 bullet maturity and to fully service and repay all other outstanding senior
debt over the next nine years, with a robust debt service cushion. Under our base case, we forecast an ADSCR of 3.3x
in 2019, strengthening materially thereafter as the outstanding senior debt reduces. Our expectation is that RL will
maintain its policy of fully repaying due debt and not refinance at maturity. We also expect that the imposed sanctions
will not have any material impact on the project and Qatar will continue to have access to international waters and
worldwide exports.

Downside Scenario
We could lower the ratings by one notch or more if the project's strong consolidated cash flow generation were to
weaken to put downward pressure on the debt service cover ratios under our base case, or to weaken the project's
resilience under our downside scenario. Reduced cash flows could arise from a sustained period of depressed global oil
and gas prices or if RL's customers were to renegotiate the terms of their long-term LNG offtake contracts, exposing
RL to lower revenues or greater cash flow volatility. An increase in RL's exposure to LNG spot sales could also put the
rating under pressure, particularly if we believe greater spot market exposure would lead to lower revenues or higher
cash flow volatility. Specifically, we would likely lower the ratings if our forecast base-case minimum ADSCR falls
below 2.5x or if the average ratio is no longer comfortably above 5x.

We will continue to monitor the political tensions in the region and may take a negative rating action if we view
developments could be detrimental to RLII's and RL3's ability to generate strong consolidated cash flows. This could
occur, for example, if LNG ships have difficulty in accessing the LNG facilities or face refueling restrictions, or if
international counterparties to the project sever their relationships with Qatar and thereby choke the project's revenue
stream.

Upside Scenario
The project's exposure to commodity price risk and the potential for political tensions in the region limits the potential
for a rating increase.

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 Transaction Update: Ras Laffan Liquefied Natural Gas Co. Ltd. (II)

Our Operations Phase Base Case And Downside Case Assumptions

Base Case Assumptions
• Train availability: 97%

• Oil price Brent crude US$/bbl: $65, 2018; $60, 2019; $55 2020 and thereafter in line with our assumptions published
on May 7, 2018, "S&P Global Ratings Raises 2018 Brent And WTI Oil Price Assumptions And 2019 Brent Price
Assumptions"; We assume no price differential between JCC and Brent.

• Gas price (Zeegrube Hub): US$4/mmBtu from 2018, which is a price difference of US$1/mmBtu to the Henry Hub
gas price assumptions published in the aforementioned article.

• Capital expenditure: US$200 million per year from 2018 through to the repayment of all existing senior debt in 2027.

• Full repayment of senior debt bullet due in 2019 (i.e., no refinancing).

Base Case Key Metrics

• The project's minimum and average ADSCRs, calculated in line with our criteria, are 3.25x and 10.61x, respectively.

• The minimum ratio is commensurate with a preliminary operations phase SACP of 'bbb'.

Downside Case Assumptions

• Train availability: 92%

• Oil price Brent crude US$/bbl: US$40/bbl from 2018 through the life of the project in line with our assumptions
published in "Market Assumptions Used For Oil And Gas Project Financings" on Jan. 14, 2016." We assume no
price differential between JCC and Brent.

• Gas price (Zeebrugge Hub): 3 US$/mmBtu from 2018, a reduction of $1.0 mmBtu on the base case assumption.

• Royalties: Base case +5%.

• O&M expenditure: Base case +10% 2018-2020, Base case +20% from 2021.

• Capital expenditure: Base case +10% 2018-2020, Base case +20% from 2021.

Downside Case Key Metrics

• Performance under the downside case demonstrates the project's strong resilience to low oil and gas prices. We
assess the project's performance under the downside case as 'aa'.

• Consequently, we make a two-notch positive adjustment to the preliminary operations phase SACP to reflect the
strength of the downside case.

Operations Update
The global hydrocarbon sector has shown stability over the last year, with less volatility in the oil and gas markets.
Hydrocarbon prices have increased materially in 2017 and in 2018 to date, reflecting strong demand globally and
production cuts by OPEC and non OPEC members. The Brent oil price is close to US$80/bbl as of May 2018 and has
been consistently over US$60/bbl since January 2018. In May 2018, we revised upwards our long-term hydrocarbon

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 Transaction Update: Ras Laffan Liquefied Natural Gas Co. Ltd. (II)

price deck assumptions for 2018 and 2019 to US$65/bbl and US$60/bbl respectively, while maintaining the long-term
forecast at US$55/bbl. We have reflected this price revision in our base-case analysis, which has resulted in improved
cash flow generation and improves the projects' headroom at the current rating level. The cash flow improvement is
despite the fact that we have revised downward our base-case availability to 97%, from 98% previously, to factor in the
potential for unplanned outages. The minimum forecast DSCR in 2019 is 3.35x under our base-case analysis, up from
3.0x at the time of our last review. The average ratio remains strong at 10.61x (up from 8.4x).

Availability in 2017 was robust at 98.7% for RLII and 96.8% for RL3, above the design availability of 96.0% and 95.6%
respectively. Operational performance continues to be strong and the project has moved the maintenance cycle to a
four-month period, from two months. RL had another strong year in terms of safety performance, with both the total
recordable incident rate and lost time incident rate well below the industry's benchmark level.

RL 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.

RL's operations and maintenance service provider, RasGas Operating Co., has been successfully integrated with that of
the QatarGas operating company. RL has not experienced any operational impact as a result of the merger. The new
combined service provider, Qatargas, officially started providing services at RL in January 2018.

No solution has yet been found for the diplomatic crisis in the region, which began in June 2017 when several
countries abruptly cut off diplomatic relations with Qatar. These countries included Saudi Arabia, United Arab
Emirates, Bahrain, Mauritania, and Egypt. RL's management has confirmed that the imposed sanctions have not had
any material impact on the project, with no disruption to the production, shipping, cash flow, or other activities. Qatar
has access to international waters via the Strait of Hormuz without crossing Saudi, Emirati, or Bahraini national waters
and worldwide exports of products continue unaffected.

Project Counterparties
We assign a counterparty dependency assessment (CDA) to any counterparty that we consider material and not easily
replaceable without significant time or cash flow implications. The issue rating incorporates our CDA criteria during
construction and operations.

Revenue counterparty
RL benefits from multiple long-term SPAs for the LNG production from all trains for the duration of the term of the
debt and beyond. We do not assign a CDA to the SPA counterparties, however, in view of the projects' ability to sell to
the LNG spot market. We would assign a CDA in the future if a change in current sales policy resulted in significant
reliance on established contracts.

Operations and maintenance counterparty

We do not assign a CDA to Qatargas, which performs all operation and maintenance activities for RL since it fully
integrated RasGas Operating Co. in January 2018. We view Qatargas as replaceable, given that the nature of its tasks
is relatively well understood and could be provided by other players in the field, if required. Furthermore, there is a
wide field of replacements and sufficient credit enhancement in the transaction to cover one month's fee for its

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 Transaction Update: Ras Laffan Liquefied Natural Gas Co. Ltd. (II)

replacement.

Financial counterparty
The issue rating is weak-linked to the long-term counterparty credit rating on Citibank (A+/Stable/A-1), the account
bank provider, given that the account bank replacement language does not comply with our criteria, "Criteria -
Structured Finance - General: Counterparty Risk Framework Methodology And Assumptions" published June 25, 2013.
Replacement of the account bank provider may not be automatically triggered if our rating on Citibank falls below the
minimum required level of 'A'. The current rating on Citibank meets the rating standards required for a qualifying bank
and does not currently constrain the rating on the project.

Other Modifiers Update

We do not assign any other rating modifiers.

Ratings Score Snapshot

Operations Phase SACP (Senior Debt)

• Operations Phase Business Assessment: 9 (1=best to 12=worst)

• Preliminary SACP: 'bbb'

• Downside Impact on Prelim SACP: 'aa' (+2)

• Capital Structure and Avg. DSCR Impact on Prelim SACP: +1 notch:

• Liquidity: Neutral

• Comparative Analysis Assessment: None

• Operations Phase SACP: a

Modifiers (Senior Debt)

• Parent linkage: Delinked

• Structural protection: Neutral

• Extraordinary government support: Not applicable

• Full credit guarantees: No

• Senior Debt Issue Rating: 'A'

Related Criteria
• Criteria - Corporates - Project Finance: Key Credit Factors For Oil And Gas Project Financings, Sept. 16, 2014

• Criteria - Corporates - Project Finance: Project Finance Operations Methodology, Sept. 16, 2014

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 Transaction Update: Ras Laffan Liquefied Natural Gas Co. Ltd. (II)

• Criteria - Corporates - Project Finance: Project Finance Transaction Structure Methodology, Sept. 16, 2014

• Criteria - Corporates - Project Finance: Project Finance Framework Methodology, Sept. 16, 2014

• General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013

• Criteria - Structured Finance - General: Counterparty Risk Framework Methodology And Assumptions, June 25,
2013

• Criteria - Corporates - Project Finance: Project Finance Construction And Operations Counterparty Methodology,
Dec. 20, 2011

• General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009

Related Research
• S&P Global Ratings Raises 2018 Brent And WTI Oil Price Assumptions And 2019 Brent Price Assumptions, May 7,
2018

• Market Assumptions Used For Oil And Gas Project Financings, Jan. 14, 2016.

Additional Contact:
Infrastructure Finance Ratings Europe; InfrastructureEurope@spglobal.com

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