Exmar and Pacific Exploration & Production (PEP) have agreed to terminate the liquefaction and storage agreement they signed in March 2012 because it is no longer economically viable – and to dodge the fallout of a possible Chapter 11 filing by PEP, Exmar told Splash today.
The 15-year tolling agreement was due to commence upon delivery of the floating liquefaction unit Caribbean FLNG (CFLNG), which is still under construction in Nantong, China. The vessel was launched in November 2013 and will undergoing commissioning from April onwards. Its delivery is due in the second quarter.
The $180m CFLNG unit was originally to be deployed at the port in Tolu, southeast of Cartagena, Colombia. Start-up of the project was put on hold in January 2015 due to “unfavourable market conditions”. The two parties were still looking for a project at which to deploy the unit in March 2015, as Splash reported at the time.
Miguel de Potter, Exmar’s CFO, told Splash the contract termination will limit the company’s exposure to a possible bankruptcy filing by PEP, which is struggling.
“Looking at the latest press releases, we have a fair chance to see that they will default on their [loan] covenant and will sometime end up in a Chapter 11 situation. By terminating the contract, we can open up the vessel to other opportunities,” Potter said.
“Since the execution of the tolling agreement, the domestic natural gas market in Colombia and international LNG market have changed substantially making the liquefaction of LNG in Colombia no longer economic for PEP,” Exmar said in a release today.
Exmar will receive an undisclosed termination fee from PEP in monthly installments starting this month until June 2017, as per the companies’ settlement agreement, signed on March 3.
The Caribbean FLNG unit is equipped to convert 72m cubic feet per day of natural gas into LNG for temporary storage and export. Exmar said in March 2015 the unit was “95% completed” and would begin commissioning operations that summer, but the company appears to have postponed the work for around 12 months.
“Exmar is actively negotiating new employment of the CFLNG with several counterparts and the CFLNG will be delivered in the second quarter 2016 from the Wison shipyard in Nantong,” the company said.
