Magnolia LNG Executes EPC Contract with KBR-SK JV

Liquefied Natural Gas Limited advised that its wholly owned subsidiary, Magnolia LNG LLC (Magnolia), has agreed a legally binding lump sum turnkey (LSTK) engineering, procurement and construction contract (EPC Contract) with the KBR‐SKE&C joint venture (KSJV) in relation to the Magnolia LNG project (MLNG).  

Contract Highlights:

• EPC Contract LSTK cost of US$4.354 billion for four LNG trains and associated facilities
• EPC guaranteed production of 7.6 mtpa, or 0.8 mtpa greater than previous guidance
• The EPC Contract LSTK plant design utilises LNGL’s patented OSMR technology 
• Installed capacity cost/tonne range of US$495 to US$544 based on final design at FID
• LNG plant fuel gas consumption of 8%, or 92% feed gas production efficiency guaranteed
  
• EPC Contract LSTK price is valid to 30 April 2016

The  EPC  Contract  covers  the  engineering,  procurement  and  construction  of  four  LNG production  trains  with  design  capacity  of  2  mtpa  or  greater  each,  two  160,000m3  full containment storage tanks, LNG marine and ship loading facilities, supporting infrastructure and all required post‐FID approvals and licenses.  

On 24 August 2015, MLNG announced selection of the Siemens Energy Inc. (Siemens) process compression  and  driver  equipment.  The  increased  power  available  from  the  Siemens equipment potentially enables higher final plant design capacity which, following completion of remaining engineering and analysis, will be confirmed prior to Final Investment Decision (FID).  As a result, MLNG’s per tonne EPC cost may reduce within the range of US$495/tonne ‐ US$544/tonne based on the final installed capacity design.

The EPC guaranteed production totalling 7.6 mtpa for the four‐train MLNG project will not change.

The KSJV also provided pricing on a reduced (three train) project scope.  The take out cost for one  train,  estimated  by  KSJV  at  US$630  million,  is  subject  to  final  confirmation  by  31 December 2015.   

Other Costs:
Post‐FID costs to commercial operations date in early 2019, which include owner’s engineer, O&M mobilisation, insurance, commissioning gas, regulatory, other minor contracts, and capitalized overhead costs, are expected to range between 13.5% (US$585 million) and 15.5% (US$675 million) of the EPC Contract price.  These estimates exclude capitalised interest during construction.

Equity and debt transaction costs, letter of credit fees, and financing costs will be determined at the time of FID, based on final terms agreed with BNP Paribas, lenders and equity providers.   Managing Director’s Comments

LNGL Managing Director and Chief Executive Officer, Maurice Brand said, “We are pleased to announce the final lump sum turn‐key EPC contract pricing details after significant efforts by the KSJV and the Magnolia project team, managed by MLNG’s Chief Operating Officer, John Baguley.  I want to thank the KBR and SKE&C leadership for their diligence and hard work on delivering the LSTK pricing.  The total EPC capital cost in the range of US$495 to US$544 per tonne of LNG plant capacity (for the 8 mtpa or greater plant) establishes a new low for U.S. Gulf Coast projects and is substantially lower compared with recent LNG projects around the world (Figure 1).”  

“With execution of the EPC contract in hand, we shall continue with final engineering activities but will not commit to out‐sized, non‐cancellable commitments in advance of execution of offtake agreements for at least 4 mtpa of additional sales,” continued Brand. 

“The EPC Contract costs agreed with KSJV reinforce the Company’s view that our business model  of  mid‐scale,  modular  based  LNG  trains  of  nominally  2  mtpa  design  capacity, incorporating  the  Company’s  OSMR®  LNG  liquefaction  process  is  valid,  providing  a sustainable long‐term business platform that can be replicated in future projects.”

Figure 1: Comparative LNG Project Capital Costs per million tonne of LNG (plant capacity) (see Fig 1) 

Revenue Sharing Agreement

For a period of up to 15 years following the declaration of commercial start date for each train, the KSJV may be eligible for annual revenue sharing payments ranging from $0 to $30 million across the four‐train plant (maximum of about $0.07/mmBtu per annum).   Annual amounts to be paid to the KSJV reflect a near linear inclining slope starting at $0 for production below 1.7 mtpa up to $30 million for production over 2.0 mtpa, with all annual payments based on actual LNG production achieved in a year reflected on a per train average across the 8 mtpa or greater liquefaction plant.  

The  revenue  sharing  arrangement,  associated  with  KSJV’s  support  of  the  initial  scaled commercialisation of LNGL’s OSMR technology and construction approach, when combined with operating and other costs across the 8 mtpa or greater plant is expected to approximate $0.50/mmBtu.  The target cost amount of $0.50/mmBtu represents the estimated operating cost implicit in the unchanged EBITDA guidance of approximately $2.50/mmBtu across the four train project.  

KSJV Comments

“We are delighted to work with Magnolia LNG on this ground‐breaking project for more innovative, cost effective, efficient and greener LNG,” said Stuart Bradie, KBR President and CEO.  “KBR’s long history of success in global LNG, ammonia and plant modularization make us a natural fit for this exciting project and we are pleased to have the opportunity to bring our unique skills, together with our self‐perform construction capability and outstanding safety record, to create exceptional value for MLNG,” continued Bradie.