Devon Energy Corp. has entered into a non-binding LNG export agreement with Delfin Midstream Inc. that could see a final investment decision (FID) on a floating LNG vessel by the end of the year, the companies said in a joint press release on Sept. 5.

The two companies executed a Heads of Agreement (HOA) that provides a framework to finalize a definitive long-term tolling agreement representing 1 million tons per annum (mtpa) of liquefaction capacity in Delfin’s first floating LNG vessel. The facility would be able to add 1 mtpa, giving Devon up to 2 mtpa of total liquefaction capacity on a long-term basis.

The HOA also provides Devon with the opportunity for additional, future equity investments. Devon, which operates in the Delaware, Anadarko, Williston and Powder River basins and the Eagle Ford Shale, said its 2022 guidance would be unchanged by the agreement.

Tudor, Pickering, Holt & Co (TPH). analysts estimated that floating LNG vessel would be in service by 2026.

“Without details on the arrangement, we suspect the DVN investment will grow in value as the
project is derisked through FID and eventual in service,” TPH said.

As a modular project requiring only 2.0 mtpa to 2.5 mtpa of long-term contracts to begin construction, and with all necessary permits in hand, Delfin is on schedule to make FID on its first floating LNG vessel by the end of this year.

“Our decision to invest in Delfin was the result of a thorough process intended to create additional pricing diversification for our natural gas portfolio and deliver a sustainable and capital efficient return for our shareholders,” said Rick Muncrief, Devon’s President and CEO. “Devon has a strong track record of finding best-in-class midstream and downstream solutions for our production, and we are excited to partner with Delfin to meet the need for safe, clean and reliable energy.”

Delfin’s announcement is its third major agreement in the past two months, Devon said. Delfin announced in July an LNG sale and purchase agreement with the Americas-based affiliate of Vitol Inc. Under that agreement, Delfin will supply 0.5 mtpa capacity on a free on-board basis for a 15-year period valued at $3 billion in revenue. The agreement was indexed to Henry Hub benchmark prices.

In August, Delfin and Centrica also announced an HOA for 1 mtpa of LNG for 15 years.

Delfin is also in numerous advanced discussions on additional binding sale and purchase agreements, HOAs and tolling agreements similar to those previously announced.

“We are delighted to execute this agreement with Devon, representing a truly strategic partnership between a U.S. producer and a liquefaction provider,” said Dudley Poston, Delfin CEO. “We believe our unique liquefaction solution provides significant structural flexibility that allows producers to maximize the value of their natural gas, while providing a much-needed source of additional supply to the world LNG marketplace.”

Delfin, with offices in Houston and Norway, is a leading LNG export infrastructure development company utilizing low-cost floating LNG technology solutions, according to Devon’s press release. Delfin is the parent company of Delfin LNG LLC and Avocet LNG LLC. Delfin LNG is a brownfield Deepwater Port requiring minimal additional infrastructure investment to support up to four FLNG Vessels producing up to 13 million tonnes of LNG per annum.

Delfin purchased the UTOS pipeline, the largest natural gas pipeline in the Gulf of Mexico. Delfin LNG received a positive Record of Decision from MARAD and approval from the Department of Energy for long-term exports of LNG to countries that do not have a Free Trade Agreement with the U.S.

Latham & Watkins LLP is serving as legal advisor to Delfin. Kirkland & Ellis LLP is serving as legal advisor to Devon.