Ophir Energy has signed a preliminary agreement to sell gas from its Fortuna floating liquefied natural gas (FLNG ) project in west Africa. All the six counterparties are established LNG buyers in European and Asian markets.
The oil and gas explorer’s announcement that it had found six buyers for the gas shored up confidence in the project, which comes amid weak LNG prices, sluggish demand and rising global output.
The cost of the Fortuna project off the coast of Equatorial Guinea has already been slashed from $800 million to $600 million.
Ophir is selling 2.2 MTPA of LNG offtake, however the total demand requested under the HoAs has seen the offtake sold several times over.
The Heads of Agreements (HoAs) are based on a variety of different pricing constructs with formulae that consist of either European gas market netbacks
, oil indexation
or a combination of both and that in some cases include the provision of a floor price.
Offtake under several of the HoAs also incorporates a sharing of incremental diversion income earned above the base contract formula for LNG volumes that are subsequently sold into higher value markets.
As well as pricing structure, Ophir has secured additional elements to its LNG offtake HoAs that are significant for the development of the project. These include the offer to pre-pay for LNG volumes in substantial quantities over the early years of the contract.
The funds received from pre-payments could cover 30%-50% of Ophir’s total net cost to first gas and could therefore be a major contributor towards funding of the project.
The Upstream FEED process is presently c. 50% complete and as a result Management is able to refine and reduce the remaining upstream cost to first gas. The project has been able to capitalise on the deflationary cost environment and has been redesigned to increase standardisation of components wherever possible.
Accordingly the current Management estimate for gross cost to first gas has reduced c. 25% from previous guidance to c. $600 million ($480 million net).
Separately, Ophir has contracted Fugro to perform geotechnical, environmental and metocean surveys for the Fortuna project. The Fugro Searcher, Fugro Scout, and Fugro Frontier vessels have been deployed for this work, which is scheduled for completion in January 2016.
Commenting on the signings and cost reductions, Nick Cooper
, Chief Executive of Ophir, said: “The Fortuna FLNG project continues to move forward on schedule with the now formal signing of all the HoAs for gas offtake with a core group of LNG buyers. Each offtaker’s proposal offers something different, thereby providing Ophir with a range of pricing formulae and differing commodity risk profiles which will be helpful when we narrow down the short list in Q1 2016.
“We are also pleased to report that the estimated cost to first gas has been reduced by a further 25% during FEED. This cost reduction, plus the offered LNG pre-payment mechanisms materially reduce the amount required to fund Ophir’s portion of the project ahead of the Final Investment Decision in mid-2016,” he added.