Marathon, GEPetrol a step closer on LNG project

Petroleum News

Marathon Oil Corp., the government of Equatorial Guinea and Compania Nacional de Petroleos de Guinea Equatorial, “GEPetrol,” the national oil company of Equatorial Guinea, have finalized the necessary agreements for the companies’ Equatorial Guinea liquefied natural gas project.

The companies said this is “the final investment decision” for the project, expected to be completed and shipping its first cargoes of LNG in late 2007, and called it “a record-setting pace from project inception to first delivery of LNG.”

Clarence Cazalot Jr., president and CEO of Marathon, said the project “is an excellent investment opportunity that will yield attractive rates of return enabling both Marathon and Equatorial Guinea to create sustainable value growth.”

The companies said the project “will be one of the lowest cost LNG operations in the Atlantic basis with an all-in LNG operating, capital and feedstock cost of approximately $1 (per million Btu) at the loading flange of the LNG plant.”

Marathon is funding 75 percent of the project, GEPetrol the remaining 25 percent, although the companies said both “have received expressions of interest from a number of companies about acquiring an equity interest in the LNG project.”

The project will purchase natural gas from Alba field participants Marathon (63 percent), Noble Energy and GEPetrol under a long-term gas supply agreement, the companies said, and 3.4 million metric tons per year of LNG will be sold to BG Gas Marketing Ltd., a subsidiary of BG Group, under a 17-year purchase and sale agreement which begins in late 2007.

The companies said BG Gas Marketing will be purchasing free on board, F.O.B., at Bioko Island, Equatorial Guinea, with pricing linked principally to the Henry Hub index, and will target the Lake Charles, La., LNG import terminal as its primary destination.

The companies said “the agreement provides destination flexibility of the LNG,” so that BG Gas Marketing can “take advantage of prevailing market conditions at other import destinations around the world.”

Bechtel is the primary engineering, procurement and construction contractor. Construction costs are estimated at approximately $1 billion or approximately $260 per metric ton of installed capacity.

Preliminary construction work on the plant began in December 2003, and work is progressing on schedule with site preparation, accommodation, equipment mobilization and ordering of major plant components.

The plant will use the Phillips Optimized Cascade Process.

The contracted off-take rate is 3.4 million metric tons per year for 17 years, but “the plant is expected to have the ability to operate at higher rates and for a longer period,” the companies said.

The Alba field holds estimated remaining gross risked recoverable resource of 4.4 trillion cubic feet of gas, and the companies said approximately 3 tcf of that is expected to be produced through the LNG plant under the contract with BG.