ExxonMobil Corp. (NYSE: XOM) will expand its Rovuma LNG project in Mozambique by half to cut production costs as the partners prepare to book the plant’s supply and formally tap lenders in September, the company told Reuters on July 12.
The U.S. oil giant took charge of the East African LNG project’s onshore operations following a $2.8 billion deal with Italy’s Eni (NYSE: E) last year, adding to its slate of planned gas projects in Qatar, Papua New Guinea, Russia and the U.S.
It now aims to build the world’s biggest liquefaction units, or trains, outside Qatar, in Mozambique’s remote north, shelving former operator Eni’s more modest blueprint in pursuit of cost savings to boost returns on investment.
“The larger train design will lower the unit cost of the Rovuma LNG project and ensure a competitive new supply for the global LNG market,” Exxon spokeswoman Julie King said in response to emailed questions.
Under new development plans submitted to the government this week, Exxon’s first two liquefaction trains should each produce 7.6 million tonnes per annum (mtpa), with a start date in 2024.
Eni initially planned 5 mtpa trains.
The Italian oil major holds the offshore resource license to Area 4, which contains some 85 trillion cubic feet of gas in place to be super cooled into a liquid and exported on ships to world markets.
Super-sizing the first two trains means having to renegotiate a resource-sharing deal Eni struck in 2015 with rival LNG project developer Anadarko Petroleum (NYSE: APC), which owns the neighboring Area 1 license, industry sources said.
A geologically porous section of Area 4 covering the Mamba and Prosperidade fields straddles Area 1. This effectively means Exxon-Eni would pump gas away from Anadarko’s adjoining reservoir to feed its LNG plant.
“Area 4 and Area 1 stakeholders have agreed on the Unitization and Unit Operating Agreement [UUOA] which has been presented to the Mozambican government for approval,” King said.
Anadarko spokeswoman Helen Wells said the company was engaging with the government and Area 4 to address any concerns and ensure the UUOA benefits all involved.
Mozambique’s two rival LNG projects are ramping up to take final investment decisions in 2019 and both are teeing up buyers and loans to underpin hefty construction costs.
But there the similarities end.
Anadarko Petroleum’s approach involves raising a record $14 billion to $15 billion from banks and export credit agencies (ECAs) to fund the build. At the same time, it is lining up long-term LNG sales deals with external companies in China, Asia and Europe to guarantee the loans.
Exxon in contrast will finance a larger share of costs from its own pockets as well as drawing on project partners, including Eni, Korea Gas Corp. and China National Petroleum Corp. (NYSE: PTR), bank and industry sources said.
Exxon said it expects Rovuma LNG financing to originate from a mix of “external lenders and joint-venture party funding.”
“We have begun initial engagement with lenders and are planning a formal kick-off event in September 2018,” King said.
Exxon already approached those ECAs that backed Eni’s Coral South Floating LNG project in Area 4 last year, sources said.
For its part, Anadarko engaged commercial banks on May 21 after having first secured interest for about $12 billion from ECAs.
Production from Rovuma LNG will also be treated differently.
While Anadarko sought out buyers from France’s EDF to Britain’s Centrica and Japan’s Tokyo Gas, Exxon is holding talks for binding sales and purchase agreements for Rovuma output with subsidiaries of its Area 4 project partners.
“We expect sufficient interest from the affiliate buyers to launch the project and support the financing,” King said.
Recommended Reading
M&A Spotlight Shifts from Permian to Bakken, Marcellus
2024-04-29 - Potential deals-in-waiting include the Bakken’s Grayson Mill Energy, EQT's remaining non-operated Marcellus portfolio and some Shell and BP assets in the Haynesville, Rystad said.
Chesapeake-Southwestern Deal Delayed Amid Feds Scrutiny of E&P M&A
2024-04-05 - The Federal Trade Commission asked Chesapeake and Southwestern for more information about their $7.4 billion merger — triggering an automatic 30-day waiting period as the agency intensifies scrutiny of E&P deals.
EQT, Equitrans to Merge in $5.45B Deal, Continuing Industry Consolidation
2024-03-11 - The deal reunites Equitrans Midstream Corp. with EQT in an all-stock deal that pays a roughly 12% premium for the infrastructure company.
Chord, Enerplus’ $4B Deal Clears Antitrust Hurdle Amid FTC Scrutiny
2024-04-08 - Chord Energy and Enerplus Corp.’s $4 billion deal is moving forward as deals by Chesapeake, Exxon Mobil and Chevron experience delays from the Federal Trade Commission’s requests for more information.
Talos Energy Sells CCS Business to TotalEnergies
2024-03-18 - TotalEnergies’ acquisition targets Talos Energy’s Bayou Bend project, and the French company plans to sell off the remainder of Talos’ carbon capture and sequestration portfolio in Texas and Louisiana.