THE OWNER of the Dampier to Bunbury Natural Gas Pipeline (DBNGP) has settled cost negotiations with third parties which use its pipeline to transport gas south from the Pilbara region of Western Australia.
DBP Transmission, in which Duet Group holds an 80 per cent stake, said it had renegotiated standard shipper contracts (SSC) with the majority of the groups which contracted for firm full-haul gas transportation capacity on the DBNGP.
Duet now had tariff certainty for more than 85% of DBP’s aggregate firm full haul contracted capacity, including an exempt contract held by Alcoa, which holds the other 20% of DBNGP.
Shippers who agreed to the new SSCs would also have greater certainty over their gas transportation costs when compared to what may happen when Western Australia’s Economic Regulation Authority resets the regulated tariff – due to take effect on 1 January 2016, the company said.
Some of the companies transporting gas on the pipeline had brought forward a portion of their pipeline capacity relinquishment rights, meaning the pipeline’s contracted capacity from 1 July 2014 was 58 terajoules per day lower – a fall of about 7%.
Duet chief executive David Bartholomew said recontracting had meant the company was able to secure revenue certainty for DBP and certainty on gas transportation costs for its shippers.
“Recontracting provided DBP with the opportunity to reset and extend its hedge book, capturing the benefit of current low forward base interest rates,” he said.
“The resulting lower forecast interest expense is expected to largely offset the cash flow impact of lower forecast gas transportation revenues for DBP in the current financial year.”
The parties have also agreed to extend the term of the new SSCs to between 2025 and 2033 (with two further five year extension options).
The tariff payable under the new SSCs was about 9.5 below DBP’s SSC tariff, though this would be escalated on an annual basis, Duet Group said.
Despite this, ratings firm Standard & Poor’s revised its outlook on the DBNGP Trust from stable to negative – retaining a BBB- issuer credit rating on both the DBNGP Trust and DBNGP Finance.
In a statement, S&P Credit analyst Minh Hoang said the negative outlook reflected downward pressure on DBP’s leverage metrics stemming from the new shipping contracts.
“Although we expect the financial profile to eb supported by lower interest costs, such benefit is likely to be offset by the lower tariffs agreed to in the new shipping contracts; we forecast that over time, lower tariffs will pressure financial metrics,” he said.
“Accordingly, we believe DBP’s financial profile may not remain commensurate with the BBB- rating without shareholder support.”
While Duet Group had a demonstrated track record of supporting the assets in its portfolio, there was a heightened risk of a downward transition in creditworthiness without clarity about how the shareholders would provide this support to the company.
“The rating could be lowered by one notch within the next six to 12 months if we lose confidence that DBP’s shareholders will take action to restore the company’s financial metrics to a level consistent with the current rating,” Mr Hoang said.