Golar entered into 20-year agreements for 5.95 million tpy nameplate capacity in Argentina

The vessel will be chartered to Southern Energy S.A. (SESA), offshore Argentina. 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. The MKII FLNG charter remains subject to FID and the same regulatory approvals as granted to the FLNG Hilli project, expected within 2025.

Key commercial terms for the respective 20-year charter agreements include:

• FLNG Hilli (nameplate capacity of 2.45 million tpy): expected contract start-up in 2027, net charter hire to Golar of US$285 million per year, plus a commodity linked tariff component of 25% of Free on Board (FOB) prices in excess of US$8/mmbtu.
• MKII FLNG (nameplate capacity of 3.5 million tpy): expected contract start-up in 2028, net charter hire to Golar of US$400 million/y, plus a commodity linked tariff component of 25% of FOB prices in excess of US$8/mmbtu.

The two FLNG agreements are expected to add US$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 US$1/mmbtu above the US$8/mmbtu, the total upside for Golar will be approximately US$100 million when both FLNGs are in operation. Subject to a 3-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.

The commodity linked tariff component is upside oriented. Golar will make 25% of realized FOB prices above a threshold of US$8/mmbtu, with no cap to the upside for gas prices. Golar has also agreed to a mechanism where the charter hire can be partially reduced for FOB prices below US$7.5/mmbtu down to a floor of US$6/mmbtu. Under this mechanism, the maximum accumulated discount over the life of both contracts has a cap of US$210 million, and any outstanding discounted charter hire amounts will be repaid through an additional upside sharing if FOB prices return to levels above US$7.5/mmbtu. Golar is not exposed to further downside in the commodity linked FLNG charter mechanism.

SESA is a company formed to enable LNG exports from Argentina. SESA is owned by a consortium of leading Argentinian gas producers including Pan American Energy (30%), YPF (25%), Pampa Energia (20%) and Harbour Energy (15%), as well as Golar (10%). The 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 (based on US-CPI). Golar’s 10% shareholding in SESA provides additional commodity exposure.

The project has received the full support of the National and Provincial Governments in Argentina that granted all necessary approvals including (i) the first ever unrestricted 30-year LNG export authorisation in Argentina; (ii) qualification for the Incentive Regime for Large Investments (RIGI); and (iii) provincial approval by the province of Río Negro for the offshore and onshore Environmental Impact Assessments for FLNG Hilli.

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 monetise 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 utilise spare volumes from the existing pipeline network. 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’s CEO, Karl Fredrik Staubo commented: “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. For Golar, the project adds robust earnings backlog, attractive commodity upside potential in the FLNG tariff and strong partner alignment through our shareholding in SESA.”

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