Editor's note: This article updates additional financial deals related to Sempra and ConocoPhillips' joint venture and term offtake agreements obtained by Sempra by various firms.
Sempra is moving forward on building a major liquefied natural gas export project on the Texas Gulf Coast and closed its related joint venture (JV) with ConocoPhillips, the company said on March 20.
Sempra Infrastructure, a 70%-owned subsidiary of San Diego-based Sempra, reached a final investment decision (FID) to develop and operate the first phase of Port Arthur LNG in Jefferson County, Texas, the company said in a press release.
The project’s first phase will include two liquefaction trains, two storage tanks and associated facilities capable of producing around 13.5 million tonnes per annum (mtpa) of LNG. Sempra expects to spend an estimated $13 billion developing Port Arthur LNG Phase I.
Sempra previously said it anticipated reaching FID on Port Arthur LNG Phase I during the first quarter.
In conjunction with reaching FID on the project, an affiliate of ConocoPhillips acquired a 30% non-controlling interest in Port Arthur LNG Phase 1 through a JV with Sempra.
ConocoPhillips has agreed to offtake 5 mtpa of LNG from the liquefaction project’s first phase under a 20-year sale and purchase agreement. The Houston company will have certain equity and offtake rights to participate in future expansion projects at Port Arthur LNG, Sempra said.
“Our strategic LNG partnership with Sempra will help supply growing global demand for natural gas, a lower greenhouse gas emissions-intensity fuel expected to play a critical role in the energy transition and global energy mix going forward,” said ConocoPhillips Chairman and CEO Ryan Lance.
Around 10.5 mtpa of the project’s LNG capacity is fully subscribed under long-term contracts with buyers, including ConocoPhillips, ENGIE, INEOS and other offtakers.
Related: Sempra Strikes LNG Supply deal with ConocoPhillips
Sempra also announced a new agreement to sell a portion of its stake in Port Arthur LNG Phase I to funds managed by New York-based investment firm KKR. KKR will acquire an indirect, non-controlling interest of between 25% and 49% in the project.
“With strong customers, top-tier equity sponsors in ConocoPhillips and KKR and a world class contractor in Bechtel, this project has the potential to become one of America's most significant energy infrastructure investments over time, while creating jobs and spurring continued economic growth across Texas and the Gulf Coast region,” said Sempra Chairman and CEO Jeffrey Martin in a news release.
Sempra said it is targeting 20% to 30% of indirect ownership interest in Port Arthur LNG Phase I after closing the KKR deal.
“Consistent with KKR Infrastructure's strategy of seeking stable and predictable returns for investors, our investment in Phase 1 is backed by robust cash flows through long-term contracts with high-quality counterparties,” said James Cunningham, partner at KKR.
Sempra Infrastructure also announced closing $6.8 billion in debt financing for the project with various commercial banks and other financial institutions for the project.
Last year, Sempra finalized a $10.5 billion engineering, procurement and construction contract with Bechtel Energy for the project’s first phase. Sempra said it issued a final notice to proceed on the project to Bechtel.
Port Arthur LNG’s first two liquefaction trains are expected to begin commercial operations in 2027 and 2028, respectively. Sempra Infrastructure is also actively marketing and developing the second phase of Port Arthur LNG, which could add two more liquefaction trains and another roughly 13 mtpa of offtake capacity.
ConocoPhillips JV details
Regulatory filings revealed new, if convoluted details about the ConocoPhillips-Sempra JV, which involves multiple subsidiaries of Sempra and ConocoPhillips that connect through a Sempra subsidiary, Port Arthur LNG LLC (PALNG). Under the terms of a November 2022 agreement, ConocoPhillips paid $265 million cash for interests and adds commitments for the E&P to contribute project financing totaling $9 billion.
The documents also reveal specific LNG offtake commitments among those who signed contracts, including ConocoPhillips, INEOS and Poland’s Polski Koncern Naftowy Orlen SA.
The Sempra-ConocoPhillips JV involves Sempra subsidiary PALNG Holdings LLC (SIP PALNG), which is an indirect subsidiary of Sempra and an indirect parent of PALNG.
On March 20, SIP PALNG Holdings closed the sale of 30% interests to ConocoPhillips Port Arthur LLC.
“Thereafter, ConocoPhillips PALNG Member will fund its pro rata equity share of Project Facilities costs that are incurred,” according to an SEC filing.
Under the terms of the agreement, ConocoPhillips and Sempra Infrastructure Partners “provided guarantees to PALNG Holdings… to make its pro rata equity share of capital contributions to fund 110% of the development budget of the project facilities, in an aggregate amount of up to $9 billion.”
The agreement also establishes a PALNG Holdings board of managers, initially consisting of three representatives appointed by Sempra and two representatives appointed by ConocoPhillips.
Offtake terms disclosed
PALNG also entered into definitive 20-year LNG sale and purchase agreements providing approximately 10.525 mtpa of LNG offtake from the project facilities. Tudor, Pickering, Holt & Co. (TPH) said the facility’s firm support comprises about 80% of the 13-mtpa project.
The project will be funded by $6.8 billion of non-recourse debt and asset-level debt and equity financing, TPH said.
Companies with 20-year agreements are ConocoPhillips Marketing & Trading International LLC, a subsidiary of ConocoPhillips; INEOS Energy Trading Ltd., a subsidiary of INEOS Ltd.; and Polski Koncern Naftowy Orlen SA (formerly Polish Oil & Gas Co.).
Two other companies, RWE Supply & Trading GmbH, a subsidiary of RWE AG, and ENGIE SA each agreed to 15-year terms.
All of the agreements became effective upon the final investment decision.
TPH analysts also noted that in addition to ConocoPhillips acquiring a 30% equity stake, the company will also secure 5 mtpa of offtake capacity and manage feedgas supply for the facility.
Ownership will be further divided, as KKR is investing in a minority stake comprising 25% to 49%, though specifics have not yet been determined according to TPH. The project will source feed gas through two new pipelines, the Texas Connector Project and the Louisiana Connector Project, both 42-inch, 2 Bcf/d pipelines.
Petrobras Brings Búzios 5 FPSO Onstream
2023-06-01 - Fifth FPSO receives production at world’s largest deepwater field, with at least six more FPSOs planned.
Family Behind Stronghold Energy Raises $500MM for Permian Deals
2023-05-31 - After selling Stronghold Energy II to Ring Energy for $465 million last year, Steve and Caleb Weatherl aim to develop another Permian position with their new E&P, Garrison Energy.
Baytex Brings Production Back Online Following Wildfires
2023-05-30 - Baytex Energy estimated that approximately 12,500 boe/d was curtailed for the month of May.
Hurricane Expectations Calmer This Season
2023-05-30 - The Atlantic Basin and Gulf of Mexico can look forward to a “near-normal” hurricane season, NOAA predicts.
Tech Trends: Coalition's Expertise Evolves FPSOs [WATCH]
2023-05-30 - In this week's Tech Trends, Hart Energy's Jennifer Pallanich dives into SLB and Rockwell's FPSO coalition combining expertise to address performance and reduce emissions.