Husky, CNOOC settle Liwan gas project dispute

Liwan Central Platform
Liwan Central Platform

Husky Energy’s China subsidiary has signed a Heads of Agreement (HOA) with CNOOC for the price adjustment of natural gas from the Liwan 3-1 and Liuhua 34-2 fields in the South China Sea. 

According to Husky’s statement on Wednesday, the HOA would see the price set at $12.50-15.00 Cdn per thousand cubic feet (mcf) at current exchange rates.

This move marks the end of a dispute over prices from the offshore project dating from April 2016 when Husky said CNOOC was looking to reduce the prices due to changes in the Guangdong gas market.

“Husky has an enforceable contract and the Company’s position is that a change in terms, if any, must be value neutral,” the company said in its 2Q 2016 results report in April.

At the time, Husky threatened legal action if a satisfactory outcome was not obtained.

“Long term fundamentals remain strong for natural gas demand in China. The price adjustment will allow Husky and CNOOC to maintain their market share in a competitive gas market,” said CEO Asim Ghosh on Tuesday.

“We reached this agreement in the spirit of the longstanding relationship between Husky and CNOOC that brought to life the first deepwater development offshore China.”

Gross take-or-pay volumes from the fields remain unchanged in the range of 300-330 million cubic feet per day (mmcf/day). Liquids production, net to Husky, is also expected to remain in the range of 5,000-6,000 barrels per day. The price adjustment under the HOA is effective as of November 20, 2015 and the settlement of outstanding payments is calculated from that date.

“Husky and CNOOC plan to further deepen their cooperation and have undertaken to jointly create more value with the advancement of the Liuhua 29-1 gas field,” said Ghosh.

Plans will get underway to finalize the commercial and development approach to tie the Liuhua 29-1 field into the Liwan infrastructure. Liuhua 29-1 gross gas sales volumes are expected to add approximately 80 mmcf/day.

Husky holds a 49 percent interest in the Production Sharing Contract (PSC) for the Liwan Gas Project and operates the deepwater infrastructure. CNOOC Limited holds a 51 percent interest in the PSC and operates the shallow water facilities and the onshore gas terminal.

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