Ophir Energy announced Wednesday that it has signed Heads of Agreements (HoAs) for LNG (liquefied natural gas) offtake from the Fortuna FLNG (floating LNG) project in Block R, offshore Equatorial Guinea with six counterparties, all of whom are established LNG buyers in European and Asian markets.

Furthermore, the Management estimate of the gross capital expenditure required to first gas has been revised downwards from $800 million to $600 million (i.e. from $640 million to $480 million net to Ophir’s 80 percent working interest) based on recent input from the ongoing upstream FEED (front end engineering and design) work.

Ophir is selling 2.2 million tons per annum (Mtpa) of LNG offtake, however the total demand requested under the HoAs has seen the offtake sold several times over. The HoAs are based on a variety of different pricing constructs with formulae that consist of either European gas market netbacks, oil indexation or a combination of both and that in some cases include the provision of a floor price. Offtake under several of the HoAs also incorporates a sharing of incremental diversion income earned above the base contract formula for LNG volumes that are subsequently sold into higher value markets.

As well as pricing structure, Ophir has secured additional elements to its LNG offtake HoAs that are significant for the development of the project. These include the offer to pre-pay for LNG volumes in substantial quantities over the early years of the contract. The funds received from pre-payments could cover 30 percent-50 percent of Ophir’s total net cost to first gas and could therefore be a major contributor towards funding of the project.

The Upstream FEED process is presently c. 50 percent complete and as a result Management is able to refine and reduce the remaining upstream cost to first gas. The project has been able to capitalize on the deflationary cost environment and has been redesigned to increase standardization of components wherever possible. Accordingly the current Management estimate for gross cost to first gas has reduced c. 25 percent from previous guidance to c. $600 million ($480 million net).

Separately, Ophir has contracted Fugro to perform geotechnical, environmental and metocean surveys for the Fortuna project. The Fugro Searcher, Fugro Scout, and Fugro Frontier vessels have been deployed for this work, which is scheduled for completion in January 2016.

Commenting on the signings and cost reductions, Nick Cooper, chief executive of Ophir, said:

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