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AGDC concludes three letters of intent
Kristen Nelson Petroleum News
The Alaska Gasline Development Corp. told legislators in a mid-October update and in an Oct. 16 hearing that it has concluded three letters of intent, documents which “establish the foundation for terms and negotiation parameters for definitive agreements,” AGDC said in an Oct. 13 semi-monthly report to legislators. Copies of the corporation’s semi-monthly reports were made available by the House and Senate Resources committees as part of documentation for the Oct. 16 update which AGDC provided to legislators (see page 1 story in this issue).
AGDC has signed 22 confidentiality agreements to date, it said, and in June signed a memorandum of understanding with Korea Gas Corp. That agreement, announced by AGDC June 29, established a framework for the corporation and Kogas “to cooperate in several areas of Alaska LNG, including project investment, development, operations, and other arrangements.”
The confidentiality agreements enable companies signing them to review technical information in AGDC’s data room, something the corporation called “a critical step toward reaching definitive long-term commercial agreements.”
AGDC said it continues to work with Kogas to advance the MOU, and has also begun negotiations with the major North Slope producers for natural gas wellhead sales, negotiations which AGDC said are based on “the producers’ implied interest” during the June 15-Aug. 31 foundation customer capacity solicitation.
AGDC said Sept. 6 that “each of the three major producers expressed interest in selling gas to AGDC for further sale to the global LNG markets.”
Letter of intent AGDC provided legislators with a sample letter of intent for tolling services, the instrument used by AGDC for its capacity solicitation. The LOI says the customer becomes a foundation customer if it executes the LOI by Aug. 31, completes the capacity reservation form attached and executes a definitive agreement by May 31, 2018, for a minimum of 20 years and a minimum capacity 250,000 million Btu per day.
The LOI is effective on the signing date and terminates when definitive agreements have been executed, AGDC provides written notice of termination, the customer signing the LOI provides written notice of termination or on May 31, 2018; LIOs may be extended by written agreement signed by both parties.
Various tolling services are possible under the LIO: liquefaction, including storage and loading of LNG onto marine tankers; pipeline transportation between a gas treatment plant on the North Slope and a Nikiski liquefaction plant; gas treatment services; transmission from Prudhoe Bay to the gas treatment plant; and transportation from Point Thomson to the gas treatment plant.
Foundation customer rights Foundation customers have a number of rights, in addition to those afforded to other customers, including:
Favored nations pricing rights: tolling fees no higher than the lowest tolling fee paid for comparable service by any other customer.
Preferential rights to additional capacity, with any extra capacity in a contract year offered first to in-state regulated utilities, then to foundation customers and then to other customers, on a pro rata basis in proportion to each customer’s maximum daily quantity.
Multiple contract extension rights, up to 50 years, including the primary term of 20 years, which gives the foundation customer six opportunities to extend the term for an additional five years each, given maintenance of the system by the owner.
A right of first refusal on capacity rights after the expiration of the six extension terms.
A right of first negotiation on new capacity, including but not limited to adding another liquefaction train.
Capacity assignment rights to a third party, subject to the owner’s consent.
The right to participate in periodic technical reviews.
The agreement requires that the customer demonstrate creditworthiness contributing to the owner’s ability to obtain acceptable financing and maintain that creditworthiness throughout the terms of the definitive agreements rising out of the LIO.
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