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Ophir’s Fortuna FLNG finally bites the dust

Ophir Energy’s long-running efforts to fund the Equatorial Guinea project fail, as the company engages in takeover talks

Equatorial Guinea's decision not to extend Ophir Energy's licence on offshore block R, thus scuppering the long-delayed Fortuna floating LNG project, was largely expected, given the UK-listed firm's protracted struggle to find funding. Ophir is also currently in talks over a possible takeover by Indonesia's Medco Energi.

London-based Ophir said the loss of the $1.2bn Fortuna project would result in an impairment charge of around $300mn in its full year results, following on from a £310mn charge announced with half-year results in September 2018.

The company had been downbeat on prospects for Fortuna-the firm's leading project-for months, as it struggled to overcome a financing vacuum left by the failure to strike a deal with Chinese backers in 2017-2018. The problem was compounded by the mid-2018 departure of Schlumberger from the Fortuna venture and from OneLNG, a wider FLNG venture with Golar LNG, the Norwegian-owned company providing the Fortuna facility for Ophir.

Equatorial Guinea's energy ministry made it clear in recent weeks it was running out of patience with Ophir and has now pulled the plug. It is unclear what plans the country has for block R now.

FLNG opportunities

The collapse of Fortuna may be a setback for the new breed of relatively low-cost modular FLNG, based on converted LNG carriers. But it looks unlikely to be a fatal one, as the technology proves useful as way to exploit relatively small offshore gas reserves economically and to avoid the political risk sometimes involved with onshore projects.

Another Golar FLNG facility, the 2.4mn t/yr Golar Gimi, has already been ordered for the BP's Greater Tortue/Ahmeyim development on the Senegal-Mauritania maritime border, which received a positive final investment decision in December 2018. The facility is under construction at the Keppel shipyard in Singapore.

Greater Tortue is due to produce first gas in 2022 and there may be further FLNG orders there, if BP and its partner discover more gas. Meanwhile, UK-based New Age has hopes of deploying FLNG facilities built by SBM Offshore and JGC off Cameroon and the Republic of Congo.

Golar has already suggested that it may focus on providing facilities under a tolling system for smaller customers, rather than developing them as assets to be purchased. Fortuna followed the latter model, adding to the development's upfront costs and complexity.

By contrast, Golar's first FLNG facility, the Hilli Episeyo, has been working on a Perenco-operated field in Cameroon since June 2018 on a tolling basis. The BP order sits in a different category, given the major is less likely to run into funding difficulties.

Medco takeover talks

Certainty over the loss of the Fortuna development at least simplifies takeover talks between Medco and Ophir, confirmed by the firms at the end of December. Medco has until 28 January to make an offer, if it decides to go ahead.

"Our discussions with Medco have taken place in the shared knowledge that there were a number of potential outcomes with respect to our Fortuna asset, and these discussions continue," Ophir said in a 5 January statement.

The Jakarta-based firm will be as interested in Ophir's Asian assets as Equatorial Guinea. Medco's Asian portfolio remains heavily focused on Indonesia, but it is keen to diversify in the region. It also has upstream assets in Libya, Oman, Tunisia, the US and Yemen and has interests in the power and mining sectors.

Ophir's upstream presence includes exploration or production assets in Thailand, Vietnam, Indonesia, Malaysia, and Tanzania, Mexico and Bangladesh, as well as Equatorial Guinea.

"This is a bold move by Medco", which would "catapult the firm into being the seventh largest non-NOC upstream producer in south-east Asia, above Hess and BP, and just behind Repsol and Total," according to Angus Rodger, research director at Wood Mackenzie. 

Ophir's current output of 25,000 bl/d of oil equivalent (oe) plus Medco's stated 2018 target of 85,000 bl oe/d would take the combined total to 110,000 bl oe/d, of which 101,000 bl oe/d would be within the Asia region, the consultancy estimates.

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