Drilling Approval Invalidation Increases Uncertainty Around Barossa Gas Project with $1.15bn Debt Financing

The uncertainty around the Barossa Gas Field Project, an offshore oil and gas production project in the Timor Sea of Australia spearheaded by Australian and East Asian energy companies (Santos, SK E&S, JERA), is increasing after its drilling approval was invalidated. The committed debt financing amount of 9 banks for the Barossa project’s core offshore production FPSO facility has been disclosed for the first time.

As an integral part of the Barossa Project where gas and condensate are produced and processed, the FPSO facility accounts for a significant portion of the project's expense. Santos, SK E&S, and Jera plans to export extracted and processed gas to the Darwin LNG terminal through the pipeline.

Decisions to support the Barossa Gas Field Project from the public financial institutions of Korea (Export-Import Bank of Korea, Korea Trade Insurance Corporation) and Japan (Japan Bank for International Cooperation) that have been controversial over the past few years were made as the project operators (SK E&S, Jera) secured financing for the project itself. On the other hand, the participation of 9 banks were structured as BW Offshore, the EPC contractor for the FPSO, acquired separate equity and project debt financing for the construction of the Barossa FPSO.

7 Financial Institutions Joined NZBA, Investing in Barossa Gas FPSO Project

The banks participating as syndicated lenders for the $1.15bn debt financing include: Korea Development Bank (KDB)*, United Overseas Bank (UOB), Clifford Capital, MUFG Bank, Natixis, Oversea-Chinese Banking Corporation (OCBC), Sumitomo Mitsui Banking Corporation (SMBC), ABN Amro, and Cooperative Rabobank. After the financial close on August 2021, all of the banks involved, except for KDB and Clifford Capital, have committed to achieving net-zero at the latest by 2050 with their lending and investment portfolios consistent with a maximum temperature rise of 1.5˚C of Paris Agreement goal, under the UN-convened Net-Zero Banking Alliance (NZBA). UOB, Natixis, ABN Amro, and Rabobank took further steps by announcing exclusion policies on new oil and gas investments.

As per the document provided by the Korean Development Bank (KDB) to the National Assembly member Kang ByungWon, if the borrower doesn’t acquire the major approvals needed for the project, lenders could declare an event of default, obliging the borrower to repay the loan before the due date. The undersigned civil society organizations calling on financial institutions participating in the Barossa FPSO debt financing to terminate the loan contract by taking into account the elevated risks of climate crisis and the Barossa gas project’s conditions.

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