Freeport LNG reaches $4.6bn financial close for train 3

The majority of the funds is being provided by a syndicate of 27 commercial banks under a seven-year facility.

FLNG Liquefaction 3 (FLIQ3), the subsidiary of Freeport LNG Expansion which is developing the Freeport Liquefaction Project in Texas, has successfully closed on senior and mezzanine debt financing commitments totalling about $4.56 billion.

The proceeds are to be used for the construction of the third train of the project, estimated to cost $4.2 billion. The majority of the funds – $3.64 billion – is being provided by a syndicate of 27 commercial banks under a seven-year mini-perm construction facility, while approximately $925 million in equity financing is being provided through mezzanine debt financing, according to a statement.

“After over four-and-a-half years of incredibly hard work from so many people within Freeport LNG and from our bankers, lawyers and consultants, we are pleased to finally have the full three-train project under construction,” Freeport LNG chief executive Michael Smith said.

The Freeport LNG project involves expanding the existing LNG regasification terminal, which has been in operation since 2008, with the addition of three liquefaction trains. Of the three trains’ total capacity of approximately 15 million tonnes per year – each one has a capacity of more than 5 million tonnes annually – approximately 13.4 million tonnes has been contracted under use-or-pay liquefaction tolling agreements with Osaka Gas, Chubu Electric, BP, Toshiba and SK E&S LNG.

The expansion project is being developed by Freeport LNG Expansion, a wholly-owned subsidiary of Freeport LNG Development.

Trains 1 and 2 are already under construction and are expected to begin operations in September 2018 and February 2019, respectively. Train 3 is expected to go online in August 2019.

In addition to reaching financial close for the entire project, which is expected to cost $12.5 billion, Freeport LNG has also secured all the necessary authorisations from the US Federal Energy Regulatory Commission (FERC) and the Department of Energy (DOE) to export the entire contracted LNG production volume of the initial three trains to both Free Trade Agreement and non-Free Trade Agreement countries, under certain conditions.

The existing regasification terminal was initially developed by exploration and production company Cheniere Energy, which chose Freeport as the project site because of its proximity to “two of the largest gas hubs in the world, Katy and the Houston Ship Channel,” according to its website. The location had the added benefit that it could only accommodate one LNG terminal, thus eliminating the possibility that a competing terminal would be built later on nearby.

Smith, who aside from chief executive is also exclusive owner of Freeport LNG, became involved in the initial project being developed by Cheniere. According to the Freeport LNG website, he was instrumental in signing Dow Chemical as the regasification terminal’s first customer. Dow also became a shareholder with the purchase of a 15 percent equity stake in Freeport LNG.

Smith is also owner of Freeport LNG Investments and FLNGI Option Holdco – two of Freeport LNG Development’s four limited partners. The other two limited partners are ZHA FLNG Purchaser, a wholly-owned subsidiary of Zachry American Infrastructure; and Turbo LNG, a wholly-owned subsidiary of Osaka Gas.

Macquarie Capital acted as Freeport LNG’s sole financial advisor with respect to the financing of the project, according to the statement.