Ophir Energy has signed a binding heads of terms for a midstream chartering and operating services agreement with Golar LNG with the agreement of GEPetrol, its partner in Block R in Equatorial Guinea, who will formally ratify it next week.
This agreement establishes the key commercial terms for Golar to build, operate and maintain the floating liquefaction and storage vessel and facilities at Ophir’s operated Fortuna floating liquefied natural gas (FLNG) project in Block R, Equatorial Guinea. The vessel to be used will be Golar’s Gimi FLNG vessel.
Nick Cooper, Chief Executive of Ophir Energy, commented: “Finalising our midstream partner is a significant step forward for the Fortuna FLNG project. This agreement accelerates the date of first gas and reduces costs in a critical part of the value chain. We believe the terms of the agreement allow the project to deliver LNG at attractive returns into both Pacific Basin and Atlantic Basin LNG customers. The agreement completes the value chain economics and allows Ophir to confidently plan for first gas, and c. 67,000 boepd of production by mid-2019.
He added: “At a time when many other greenfield LNG projects are decelerating, Ophir has elected to accelerate the Fortuna FLNG Project to secure what we believe will be a better market opportunity at first gas, and to lock in anticipated reductions in upstream development costs. We will now move immediately into the define phase of the upstream and midstream projects with a view to reaching Final Investment Decision (“FID”) by mid-2016.”
“Finalising our midstream partner is a significant step forward for the Fortuna FLNG project.”
Cooper said: “We are pleased to have secured Golar as a partner; the firm is a leading provider of FLNG solutions and the flexible, competitive commercial terms we have agreed will ensure that FID can be taken at current LNG prices. Ophir sees many parallels with the emergence of leased FPSOs approximately 25 years ago for oil developments. The re-fitting of vessels and leasing them to independent E&P companies in an oil field context both unlocked a series of oil assets and also provided competitive advantage to those early adopters of the technology. Ophir believes that the same is now about to happen in a gas field context for FLNG.”
Golar will operate the Gimi under a twenty-year charter term. During this period it will be responsible for the sub-sea well control, receiving, liquefying and offloading the gas to LNG vessels. Ophir, as the operator of the Upstream component of the project, will lease the Gimi. Ophir’s responsibility will be to construct and build the sub-sea facilities, drill the development wells, manage the performance of the reservoirs and, together with the Ministry of Energy and Sonagas, to market the gas on behalf of all upstream parties.
“The agreement completes the value chain economics and allows Ophir to confidently plan for first gas, and c. 67,000 boepd of production by mid-2019.”
Golar, with its partners Keppel Shipyard (“Keppel”) and Black and Veatch have previously committed to the Gimi FLNG conversion in December 2014. Keppel is a global leader in the conversion of floating production, storage, and offloading vessels and floating storage and re-gasification units. Keppel, which has a track record of close to 120 conversions, is already working with Golar to convert a similar LNG vessel for use offshore Cameroon. Black and Veatch is a leading provider of proprietary liquefaction technology.
FID in 2016, first gas in 2019
The Gimi is expected to have an annual average capacity of 2.2 mtpa at a reservoir production rate of up to 400,000 mscfd (c. 67,000boepd) with first gas expected mid-2019. Ophir and Golar have agreed a vessel charter rate that is competitive with US liquefaction tolls and that ensures that the Fortuna LNG project is delivered at the low end of the cost curve for LNG projects.
The Fortuna FLNG project will now move into the full definition phase and Ophir has recently appointed Worley Parsons as Owners Engineer to the project. The midstream Front End Engineering and Design (“FEED”) is expected to be completed by end-2015 and the upstream FEED is expected to be completed in Q2 2016. The project is planned to reach FID by mid-2016, at which point Ophir, Golar and GEPetrol intend to have signed a fully termed charter agreement based upon these heads of terms.
The flow rate established by the Fortuna drill stem test (“DST”) conducted in late 2014 has resulted in a reduction in the estimated number of development wells required for first production from seven to three. As such, upstream capital expenditure to first gas is currently forecast to have been reduced by $200 million to around $800 million. Further savings are expected to be identified as the project moves through FEED.
In keeping with its strategy of self-funding its development projects through selling down equity in the asset, Ophir will now turn its attention to bringing an upstream partner into the project, as well as reviewing options for incorporating the Fortuna LNG project into the Group’s debt structure.
The previous agreement between Ophir and Excelerate Energy has been terminated by mutual agreement. Societe Generale acted as Ophir’s financial adviser.
Golar’s CEO Gary Smith commented: “Golar is delighted to have secured a contract for our second GoFLNG vessel. This commitment with Ophir and GEPetrol to employ a GoFLNG vessel in Equatorial Guinea represents a further step in the implementation of Golar’s strategy to become the industry’s leading integrated midstream LNG services provider, supporting resource owners, gas producers and gas consumers. Our new approach to developing LNG projects is stimulating significant interest today. Accordingly, Golar has now, based on its framework agreement with Keppel, commenced negotiations for the company’s third GoFLNG vessel.”