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AGDC board gets budget, plan updates With state now holding 25% of project, Alaska Gasline Development Corp.’s budget for its share of AKLNG in 2016 is some $60 million KRISTEN NELSON Petroleum News
The Alaska Gasline Development Corp. got updates on Alaska LNG project plans and budgets at a Nov. 13 meeting.
Since passage of Senate Bill 3001 by the Alaska Legislature earlier in November, providing funding for the state to buy out TransCanada’s share of AKLNG, AGDC will hold the state’s 25 percent share in both the midstream and downstream portions of the project.
AGDC previously held the state’s share in the liquefaction facility, the downstream portion of the project, estimated to cost about half of the project, while TransCanada held the state’s share in the North Slope gas treatment plant and the pipeline.
In a report on the AKLNG budget for calendar year 2016, Joe Dubler, AGDC’s vice president of commercial operations, said that since AGDC’s first meeting on the project, its co-venturers - BP, ConocoPhillips and ExxonMobil - have asked the state “to clarify its representation in the Project.”
Dubler said the “split ownership” - TransCanada holding the midstream and AGDC the downstream - “presented structural governance issues” which were difficult for the state to resolve, including how the state’s interest “would be represented in integrated votes, i.e. issues related to the entire project as opposed to a single segment” such as LNG terminal or pipeline issues.
Governance documents In the report Dubler reviewed the documents under which AKLNG operates, and those being negotiated.
The confidential joint venture agreement negotiated in 2014 governs the pre-front end engineering and design stage of the project. Other documents the parties have negotiated include the work program and budget, a confidential document which includes the detailed work scope and budgeted amounts for each item.
The work program and budget is approved annually during pre-FEED.
During pre-FEED a budget is proposed by the AKLNG project management team annually and recommended to the project management committee for approval. An initial budget was approved July 1, 2014, for pre-FEED work in that calendar year and an updated budget was approved by the management committee in December 2014 covering 2015 pre-FEED work.
Approval of the 2016 budget needs to be made by the management committee representatives by Dec. 4 or the project would need to be shut down as there would be no funds authorized for work in 2016.
The joint venture agreement provides that once the parties approve an annual budget for the project the cash calls for that budget become obligations of each party. The report notes that the lead party - in this case ExxonMobil - is authorized to spend up to 10 percent over the line item of a budget without further approval, provided the total of over expenditures does not exceed 5 percent of the entire work program and budget.
Once a decision is made to go to FEED, “the budget will be a one-time unanimous vote, not an annual approval,” the report says.
AGDC AKLNG budget The 2016 portion of the AKLNG budget applicable to AGDC’s 25 percent participation is $59.871 million, and with the 5 percent overage allowance could be as high as $62.865 million, the report says.
The report listed scope changes to the 2016 work program and budget, including development of 48-inch pipeline deliverables to same pre-FEED basis as 42-inch line by April 30, 2016.
A FEED funding decision could occur in the first half of 2017, possibly as early as April or as late as June, the report says, noting that earlier projections for a FEED-funding decision were March 2016 and then June 2016. The first half of 2017 is now the schedule because of the discovery during pre-FEED of the potential for improved project economics and preliminary “market-engagement advice, and the need for thorough FEED preparations to ensure quality work and value capture during FEED.”
The report also says there is the possibility of a FEED decision by the end of 2016, but that would require completion of optimization work in the first half of the year and completion of commercial agreements in time for the approval process by all the parties, estimated at 120 days.
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