Golar LNG has, after years of delays, reached agreement with Perenco and Cameroon’s national oil company SNH to increase utilisation of its floating liquefied natural gas vessel Hilli Episeyo that is deployed offshore Cameroon.
Starting next year, the capacity utilisation of Hilli Episeyo will increase by 200,000 tonnes of LNG, bringing total utilisation in 2022 to 1.4 million tonnes.
In addition to the 2022 capacity increase, Perenco and SNH intend to drill and appraise two or three incremental natural gas wells this year, and subsequently upgrade upstream facilities in 2022 to support further sustained increases in production from 2023 onwards.
Golar’s lease contract with Perenco expires in July 2026 and the contractor has said it has no plans to seek an extension unless all four liquefaction trains on the Hilli Episeyo are utilised.
“We’ve invested in four trains and are currently utilising two. So, if we were to discuss an extension, it needs to be for the full capacity, or at least we need to be paid for the full capacity of the unit,” Golar chief executive Karl Fredrik Staubo said in May.
New York-listed Golar this week said the tolling fee for the 2022 incremental capacity is linked to European gas prices at the Dutch Title Transfer Facility (TTF).
At current average 2022 TTF gas prices — an average of $8.7 per million British thermal units for 2022 — the increased capacity utilisation represents an expected $26.1 million in incremental adjusted EBITDA. For each $1 per million Btu change in TTF, this adjusted EBITDA will increase or decrease by $3.7 million.
Under the agreement, Perenco and SNH have an option to increase capacity utilisation of Hilli by up to 400,000 tonnes per annum of LNG from January 2023 through to the end of the current contract term in 2026.
This has the potential to increase total annual LNG production from Hilli to 1.6 million tonnes from January 2023 onwards.
The tolling fee for the 2023+ incremental capacity will also be linked to TTF.
Based on current average 2023 TTF gas prices — an average $6.72 per million Btu future price for 2023 — the additional 400,000 tonnes of production would generate $30.4 million of incremental annual adjusted EBITDA.
For each $1.00 per million Btu change in TTF, this adjusted EBITDA will go up or down by $7.4 million.
Perenco and SNH must declare this option during the third quarter of 2022.
At current TTF future prices, and assuming the option is exercised, Golar reckons the incremental adjusted EBITDA backlog of the potential increase in capacity utilisation for the Hilli Episeyo from 2022 until July 2026 is expected to be around $113 million.
Golar has an 86.9% economic interest in the incremental adjusted EBITDA generated as a result of the agreement, which will not change any existing terms, conditions, tolling fees or the Brent oil link associated with Trains 1 and 2 on the floating liquefaction plant.
“We are pleased to announce increased capacity utilisation of our FLNG Hilli, unlocking embedded value to our shareholders by utilising more of Hilli’s 2.4 million tonnes of liquefaction capacity,” Staubo said on Tuesday.
The FLNG vessel has achieved 100% commercial uptime since being delivered in 2018 from Keppel Offshore & Marine in Singapore although not at the utilisation rates for which Golar had hoped.
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