Brazilian independent Dommo Energia has warned it may potentially enter default on the payment of the charter of the OSX-3 floating production, storage and offloading vessel operating in the shallow-water Tubarao Martelo field in the Campos basin.

Dommo stock was down more than 15% in the Sao Paulo stock exchange following the announcement.

The company is currently finalising the revitalisation of Tubarao Martelo, which includes well completion and workover activities, thus requiring a significant capital expenditure.

“Dommo believes that it may need to utilise a large portion of its oil sales revenue to complete the revitalisation plan, which it believes is ultimately in the interest of all parties concerned,” Dommo said in a statement.

“If this situation does arise, the company is likely to default the charter payment for the next offload – scheduled for the end of December – and potentially the next one in the first quarter of 2020,” it added.

The OSX-3 FPSO is owned by a group of the company’s former creditors and is chartered until 2038.

Charter payments are calculated and paid upon each offload operation totalling up to $47.2 million per year, equivalent to a dayrate of $129,315.

Dommo said it intends to discuss potential amendments to the terms of the charter agreement with the OSX-3 lenders using the company’s own projected cash flows and operating capex.

“This default may be necessary to avoid any risk of liquidity constraints as Dommo completes the revitalisation,” the company added.

The Tubarao Martelo revitalisation initiative, expected to cost $80 million, will increase output to 10,000 barrels per day of oil and extend its life cycle to 2024. The field is currently producing 5700 bpd.

Production

Dommo warns of potential FPSO charter default