Schlumberger drops out of Golar JV amid Fortuna financing delays

Oilfield services provider Schlumberger has decided to dissolve OneLNG, its joint venture with Golar LNG created to rapidly develop low cost gas reserves to LNG, amid delays in securing financing for the Ophir-operated Fortuna FLNG project. 

The joint venture between the two was created in July 2016 with Golar getting 51% and Schlumberger 49% of the ownership.

OneLNG was supposed to serve as an exclusive vehicle for all projects that involve the conversion of natural gas to LNG, which require both Schlumberger Production Management services and Golar’s FLNG expertise.

Later that year, OneLNG signed an agreement with Ophir Energy to establish a Joint Operating Company (JOC) to develop the Fortuna FLNG project, in the Ophir-operated Block R, offshore Equatorial Guinea. Through the deal, OneLNG and Ophir got 66.2% and 33.8% ownership of the JOC, respectively.

The JOC was meant to facilitate the financing, construction, development and operation of the integrated Fortuna project.

Financing delays 

The final investment decision (FID) for the Fortuna project had initially been expected in mid-2016 but was then postponed for the fourth quarter of 2016 only to be postponed again for the first half of 2017. In September 2017, Ophir aimed at 4Q 2017 FID.

However, amid slow progress with securing the finances for the project, Ophir in late November 2017 secured a twelve-month extension to the Block R license to the end of December 2018, pushing the FID to the first quarter of 2018.

Then, a recent presentation by Ophir set the expected FID for the second half of 2018, another delay. Total capital cost for the Fortuna development is expected to be $2.1b, with first gas slated for 2022, that is, in case Ophir manages to secures the financing and sanctions the project in 2018.

It is also worth mentioning that Ophir has recently been given an ultimatum by E. Guinea authorities to either find financing and make a final investment decision for the long-stalled Fortuna FLNG project, or risk losing the acreage there.

Meanwhile, Ophir CEO Nick Cooper recently announced he would be stepping down from his position.

In the following turn of events, Golar informed on Thursday, May 31 that the company and Schlumberger plan to wind down OneLNG.

Golar said that recent LNG price increases enhance the already solid financial returns expected from the Fortuna project. Despite an agreed development plan and extensive efforts over the last twelve months by OneLNG and Ophir management, it has not been possible to finalize an attractive debt financing package, the company said.

“This, together with other capital and resource priorities, has resulted in a decision from Schlumberger to end their participation in the project. Golar and Schlumberger, as a result of this, and based on the structure of the BP project, plan to wind down OneLNG and work on FLNG projects as required on a case-by-case basis,” said Golar.

Further in the statement, Golar said that efforts to find the optimum capital structure that maximizes value for all Fortuna project stakeholders, including the government of Equatorial Guinea, continue.

The company added: “Golar does not see extensive issuance of new equity at current share price levels as an attractive financing solution. Use of alternative yards that are able to provide financing and the potential introduction of a new industrial partner are, however, being considered.”

In conclusion, Golar noted that no guarantee can be given that attractive financing for the project can be achieved.

Ophir disappointed 

Noting Golar’s announcement, Ophir said in a separate statement on Thursday: “Whilst it is disappointing that Schlumberger will no longer be part of the partnership group, Golar and Ophir remain actively engaged in senior level discussions with a number of counterparties over a financing solution for the project.”

Furthermore, Ophir said it has already held informal discussions with other, well-capitalized, potential partners for the Fortuna project.

Following the announcement about the dissolution of OneLNG, Ophir said it has now formalized discussions and are actively moving forward with them.

Ophir concluded by saying it remains focused on maximizing value creation for shareholders from the monetization of the Fortuna discovery.

It is also worth reminding that this is the second time for Schlumberger to withdraw from its participation in the Fortuna project. Back in January 2016 Schlumberger and Ophir had entered into a non-binding heads of terms agreement whereby Schlumberger would get a 40% economic interest in the Fortuna FLNG project but terminated those discussions in April 2016 due to inability to complete the transaction on the terms agreed.

Offshore Energy Today Staff