DBRS Comments on SBM Deep Panuke in Relation to Encana’s Prequalification of Contractors

DBRS Limited (DBRS) is today commenting on SBM Deep Panuke S.A., the Issuer of the 3.50% Senior Secured Notes that fully amortize by December 2021 (rated BB (high) with a Stable trend by DBRS). SBM Deep Panuke S.A. is a special-purpose entity that owns the Deep Panuke natural gas production platform offshore of Nova Scotia, Canada. Encana Corporation (Encana; rated BBB (low) with a Stable trend by DBRS) is the lessee of the platform under a Charter Agreement that extends five months beyond the full amortization of the Notes in December 2021. In May 2017, Encana issued an expression of interest document regarding prequalification of contractors to decommission the natural gas field at Deep Panuke, which includes four subsea development wells and one disposal well. Separately, Encana has requested SBM Offshore, the indirect owner of the Issuer and the Operator (SBM Nova Scotia Contractors Inc.), to proceed with a pre-FEED for the future decommissioning of the Deep Panuke platform. SBM Offshore has informed DBRS that this is part of Encana’s standard procedure and planning for such an asset, given the regulations and lengthy process involved. Encana has publicly stated that no date has been established for cessation of production, but that it would occur between 2019 and 2021. As stated in the November 2, 2016, rating report for SBM Deep Panuke S.A., DBRS considers the underperformance of the Deep Panuke field and relatively lower level of natural gas prices as increasing Encana’s motivation to exercise any Charter Agreement termination option. DBRS notes that if the Charter Agreement is terminated by or because of Encana, it must pay a Termination Fee, which together with the debt service reserve account would be sufficient to fully repay the Notes at any point in their life. As such, Encana’s actions do not necessarily signal early termination by Encana and, even if this occurs, noteholders are protected and can be fully repaid.

Notes:
The principal methodology is Rating Project Finance, which can be found at dbrs.com under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.