May 14, 2018 / 1:09 PM / 2 months ago

Exclusive: Equatorial Guinea may strip Ophir of LNG project due to finance delays

LONDON/CAPE TOWN (Reuters) - Equatorial Guinea will force Ophir Energy out of the company’s flagship liquefied natural gas (LNG) project and may scrap it entirely unless long-delayed financing deals worth $1.2 billion are presented to the government by December.

The ultimatum is a blow to UK-listed Ophir, which has set aside $150 million of its own cash to develop west Africa’s first deepwater LNG project, Fortuna, by 2022 despite the firm’s lack of a track record in LNG and small balance sheet.

“We have a clear idea of who we would give the license to but at this stage we are not prepared to comment,” Gabriel Obiang Lima, minister of mines and hydrocarbons, told Reuters.

Ophir declined to comment.

Ophir’s license to the gas fields in offshore Block R expires in December.

Lima said another option is to scrap Fortuna and instead pipe gas from Block R into an existing land-based LNG project on Bioko Island, 150 km (95 miles) southwest.

Ophir partnered with specialists Golar LNG and oil services firm Schlumberger to build the facility using a largely untested technology, which promises, in theory, to slash production costs.

Most LNG plants are land-based but Golar’s design shrinks a typical 100-1,000 acre site into a single 1970s-built ship with four liquefaction units bolted onto its sides.

Overlooked by Western banks due to Fortuna’s design and politically opaque jurisdiction, Ophir and partners wooed Asian lenders instead but were left scrambling after talks with Chinese players collapsed last year.

CLOCK TICKING

Despite quarterly pledges to proceed by Ophir Chief Executive Nick Cooper last year, a loan deal has proven elusive, testing the government’s patience and triggering a shareholder backlash as Ophir stock sank 33 percent in 12 months.

Investors are focused exclusively on Fortuna delays, said Michael Alsalem, head of the London office at azValor, a top-10 institutional investor in Ophir.

New talks with Asian lenders may yet yield a deal to get the project moving, though hurdles remain.

For example, negotiations with Industrial and Commercial Bank of China (ICBC) ran into difficulties owing to the bank’s list of demands, industry and government-linked sources said.

ICBC wants the project’s planned annual output of 2.2 million tonnes sold to China National Offshore Oil Corp, as well as for engineering, procurement and construction (EPC) contracts for the project to be handed to state-backed companies, the sources said.

As the world’s biggest energy consumer transitions from coal to gas, Chinese lenders are stepping up investments in LNG projects, using loans as hooks to secure LNG and drum up business for construction interests.

ICBC did not respond to a request for comment.

Ophir and partners have engaged a consortium of Singaporean lenders, including state investor Temasek, sources said. Temasek declined to comment.

Lima said Ophir also has a third financing option which it has not yet presented to the government, describing all bank talks as advanced.

“The problem is Ophir ... Ophir needs to make up its mind, decide which financing it wants and execute it,” Lima said.

Sources say Japanese and South Korean banks are also being sounded out.

GUNVOR OFF-TAKE DEAL IN DOUBT

Struggles to fix loans have not only left the project’s commercial structure in doubt, but jeopardised Geneva-based trader Gunvor’s [GGL.UL] claim to the LNG.

In a competitive tender last year, the trader beat Vitol [VITOLV.UL], Royal Dutch Shell, Trafigura [TRAFG.UL] and Centrica to bag between half and all of Fortuna’s supply for 10 years.

Despite that, Shell, Vitol and Trafigura are once again in talks to buy the LNG, industry and government-linked sources said.

Gunvor, Vitol, Trafigura and Shell declined to comment.

But the companies also face competition from would-be lenders.

“Whoever pays is the boss,” Lima said, adding that a Chinese or Singaporean lender would likely insist on claiming the LNG to maximize value from the deal.

Additional reporting by Colin Leopold at Project Finance International, Ron Bousso in London; Editing by Veronica Brown and Dale Hudson

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