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On Friday, Golar LNG announced the decision and fulfillment of all conditions precedent for the 20-year re-deployment charter of the FLNG Hilli Episeyo, first announced in July 2024.
The vessel will be chartered to Southern Energy (SESA), offshore Argentina.
SESA’s shareholders comprise Pan American Energy (30 percent), YPF (25 percent), Pampa Energia (20 percent), Harbour Energy (15 percent), and Golar LNG (10 percent).
In addition, Golar and SESA have signed definitive agreements for a 20-year charter for the MKII FLNG, currently under conversion at CIMC Raffles shipyard in Yantai, China.
According to Golar, the MKII FLNG charter remains subject to FID and the same regulatory approvals as granted to the FLNG Hilli project, expected within 2025.
Vaca Muerta
The FLNGs will be located in close proximity of each other, offshore in the Gulf of San Matias Gulf in the province of Rio Negro, Argentina.
The vessels will monetize gas from the Vaca Muerta formation, the world’s second-largest shale gas resource, located onshore in the province of Neuquen, Argentina.
FLNG Hilli will initially utilize spare volumes from the existing pipeline network.
Also, SESA intends to facilitate for a dedicated pipeline to be constructed from Vaca Muerta to the Gulf of San Matias to serve gas supply to the FLNGs.
The project expects to benefit from significant operational efficiencies and synergies from two FLNGs in the same area.
Golar also noted that the four Argentine gas producers have committed to supply their pro-rata share of natural gas to the FLNGs under gas sales agreements (GSA) at a fixed price per MMBtu before adjustments.
Golar’s 10 percent shareholding in SESA provides additional commodity exposure.
The company said the project has received the full support of the national and provincial governments in Argentina that granted all necessary approvals.
These include the first ever unrestricted 30-year LNG export authorization in Argentina; qualification for the incentive regime for farge investments (RIGI); and provincial approval by the province of Río Negro for the offshore and onshore environmental impact assessments for FLNG Hilli.
5.95 mtpa nameplate capacity
Golar also provided commercial terms for the respective 20-year charter agreements.
FLNG Hilli, with a nameplate capacity of 2.45 mtpa, is expected to start its contract in 2027.
Net charter hire to Golar for the FLNG is $285 million per year, plus a commodity-linked tariff component of 25 percent of free on board (FOB) prices in excess of $8/MMBtu.
Moreover, the MKII FLNG, with a nameplate capacity of 3.5 mtpa, is expected to start its contract in 2028.
Net charter hire to Golar for this FLNG is $400 million per year, plus a commodity-linked tariff component of 25 percent of free on board (FOB) prices in excess of $8/MMBtu.
$13.7 billion in earnings to Golar
The two FLNG agreements are expected to add $13.7 billion in earnings backlog to Golar over 20 years, before adjustments (based on US-CPI) to the charter hire and before commodity-linked tariff upside.
For every $1/MMbtu above the US$ 8/mmbtu, the total upside for Golar will be about $100 million when both FLNGs are in operation.
Subject to a three-year notice and payment of a fee, SESA may reduce the term of the agreement to 12 years for the FLNG Hilli and to 15 years for the MKII FLNG, according to Golar.
Moreover, the commodity-linked tariff component is upside-oriented.
Golar will make 25 percent of realized FOB prices above a threshold of $ 8/MMBtu, with no cap to the upside for gas prices.
The company also agreed to a mechanism where the charter hire can be partially reduced for FOB prices below $7.5/MMBtu down to a floor of $6/MMBtu.
Under this mechanism, the maximum accumulated discount over the life of both contracts has a cap of $210 million, and any outstanding discounted charter hire amounts will be repaid through an additional upside sharing if FOB prices return to levels above $7.5/MMBtu, according to Golar.
“Golar is excited to partner with the leading gas producers in Argentina in establishing the country as an LNG exporter. The vast resources of the Vaca Muerta formation will provide the LNG market with a reliable long-term source of attractive LNG supplies, and a significant contribution to Argentina,” Golar’s CEO, Karl Fredrik Staubo said.
