(MENAFN- ProactiveInvestors)
( OTC ADR:LNGLY) has signed a technical services agreement with global LNG engineering procurement and construction contractor KBR Inc (NYSE:KBR) for its Magnolia LNG Project in Louisiana.
KBR is a US$2.5 billion market cap. that has been involved in the delivery of about one third of the world’s current LNG production capacity.
It is proposed that KBR and South Korea’s SK Engineering and Construction Group will form an integrated EPC joint venture to deliver the 8 million tonne per annum Magnolia LNG project.
An updated EPC contract has been initialled with SKEC and Magnolia LNG remains on schedule for financial close in mid-2015 and first LNG in the fourth quarter of 2018.
Total capital costs are estimated at US$3.5 billion or US$440 per tonne for the 8Mtpa project while cost for the initial 4Mtpa project is estimated at US$1.986 billion.
“The EPC JV structure is common in the LNG industry with each participant able to provide their experience and expertise” managing director Maurice Brand said.
“KBR is a well credentialed LNG EPC contractor and will provide the Project Director and access to the full global resources of the KBR group. This will be particular relevant as Magnolia LNG moves to commit to the full 8Mtpa”.
Magnolia LNG chief operating officer John Baguley added.
“Our MLNG team recognizes the excellence delivered by the SKEC organization to date. With the project now further advancing towards EPC we are pleased to have KBR’s additional experience and resources available as we finalize the EPC Contract and project related activities towards our planned financial close in mid‐2015.
“The period from now through to 31st March 2015 during which we will merge the Provisional Sum elements into the combined lump sum fixed price contract will position Magnolia LNG to rapidly enter into the construction phase as necessary approvals and licenses are received.
“This period will also enable us to incorporate any comments received from FERC during their preparation of the Draft Environmental Impact Statement and to undertake the necessary rigorous planning and scheduling required to support achieving first LNG in 2018.
“The original SKEC project schedule and budget covering the period through to 30th June 2015 remain on target.”
Engineering Procurement and Construction Contract
Magnolia LNG and SKEC have initialled the updated EPC contract which incorporates all requirements stipulated by BNP Paribas Magnolia’s project finance adviser Merlin Advisors LLC the lenders’ technical consultant legal advisors White and Case as well as Stonepeak Partners LLC the proposed Magnolia LNG Project Equity partner.
KBR will further review and advise on this updated contract consistent with their joining the project as a contractor joint venture partner.
SKEC’s participation as a member of the integrated EPC contractor joint venture will be finalised through establishment of the EPC Contractor memorandum of understanding (MOU) to be executed in January among the parties MLNG SKEC and KBR.
SKEC and KBR will work with the company on costs and timing for Magnolia LNG to expand through to its full production capacity of 8Mtpa in the four train facility.
The initial $1.986 billion lump sum turnkey contract covers the initial 4Mtpa LNG installation comprising:
- Two LNG trains each with a LNG design capacity of 2Mtpa;
- Two 160000 square metre storage tanks;
- A jetty and ship loading facility and related infrastructure; and
- All required approvals and licenses for the full 8Mtpa project.
The contract price includes a lump sum fixed price of US$1.391 billion valid through 30 June 2015 and a provisional sum of US$595 million representing 30% of contract value.
An additional two 2Mtpa trains (Trains 3 & 4) are planned to follow the initial 4Mtpa installation.
Magnolia LNG
Magnolia LNG located along the Calcasieu River near Lake Charles is planned as a 8 million tonne per annum (Mtpa) liquefied natural gas export project comprising of four liquefaction trains each capable of producing up to 2Mtpa of LNG (1.7Mtpa firm).
This will use LNG Limited’s OSMR® LNG process technology with the company adopting a tolling business model whereby Magnolia LNG will provide liquefaction storage and ship loading facilities to LNG buyers who pay a monthly fixed capacity fee plus all LNG plant operating and maintenance costs.
The LNG buyers are also responsible for the supply and transportation of gas to the project site.
LNG Limited has tolling agreements covering 7Mtpa of the project’s planned 8Mtpa capacity and is currently focused on converting the first 4Mtpa to binding status in the first half of 2014.
The U.S. Federal Energy Regulatory Commission has formally accepted its filling application for Magnolia LNG with all approvals expected during 2015 in time for financial close in the middle of the same year.
A final investment decision will be made in late 2014.
The 117 acre site has minimal marine investment and is well positioned to provide LNG ship access.
MLNG previously entered into a 20 year legally binding pipeline capacity agreement with Kinder Morgan Louisiana Pipeline LLC (KMLP) to deliver gas to site for the full 8Mtpa of the project through its existing and underutilised pipeline on site.
Analysis
LNG Limited has taken its Magnolia LNG project another step forward with the signing of a technical services agreement with KBR a global leader in the LNG EPC business.
Going forward KBR’s input as an EPC joint venture partner will support efforts to optimise the project.
The company remains well funded with a cash balance of $60.4 million as at 31 October 2014.
Share price kickers ahead include:
- Financial Close remains on schedule for mid-2015 providing a significant milestone of achievement.
- Execute definitive Tolling Agreement for firm capacity of 3.4Mtpa from the first two trains with a design capacity of 4Mpta for the MLNG Project; and
- Secure the release of a Notice of Schedule and the Draft Environmental Impact Statement (DEIS) from FERC.
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