In response to further inquiry by the ASX, (ASX:LNG) (FRA:LI5) (OTCMKTS:LNGLY) wishes to provide further information to the market in relation to its announcement of an LNG-to-power project in Vietnam dated 16 September 2019 ( Announcement ). As stated in the Announcement, the project is led by Delta Offshore Energy Pte Ltd (DeltaOE) in coordination with LNGL’s wholly-owned subsidiary, Magnolia LNG LLC (Magnolia), and the Bac Lieu Provincial Government in Vietnam.
The Announcement refers to a term sheet, which is in the form of a memorandum of understanding between DeltaOE and Magnolia (Term Sheet). The Term Sheet details material terms of the proposed liquefied natural gas (LNG) sale and purchase agreement (SPA) having a target commercial start date of no later than January 1, 2024 (which may be adjusted by Magnolia by +/- up to 4 months). DeltaOE and Magnolia are obligated to use reasonable efforts to negotiate and agree the binding terms and conditions of the SPA pursuant to which Magnolia will supply two (2) million tonnes per annum (mtpa) of LNG to DeltaOE on a free-on-board basis for a term of at least 20 years. Negotiations are progressing.
Pricing is anticipated to be consistent with Magnolia’s previously announced market competitive fixed liquefaction fee of 113% of Henry Hub pricing, plus monthly fixed fees for LNG lifting.
The Term Sheet does not itself constitute a definitive binding SPA at this stage, but it does evidence the intent of the parties to work towards execution of a binding SPA for 25% of Magnolia’s current nameplate capacity of 8 mtpa (to be increased to 8.8 mtpa subject to Federal Energy Regulatory Commission (FERC) approval). The Term Sheet provides that the SPA will be subject to one condition precedent, being that Magnolia reaches “Financial Close” in relation to financing for the Magnolia liquefaction project by December 31, 2019 (which date may be waived or extended by agreement between the parties).
While Financial Close is the only specified condition precedent, Financial Close is, in turn, dependent on Magnolia securing sufficient offtake agreements to support financing and on LNGL making a final investment decision in relation to the Magnolia liquefaction project.
“LNGL is confident in our ability to bring negotiations with Delta Offshore Energy to a successful close that will provide value to our shareholders and bring us closer to a final investment decision,” said Greg Vesey, Managing Director and CEO, LNGL.
“Delta Offshore Energy is a wonderful partner and we look forward to a continued long-standing relationship with them and with the Bac Lieu Provincial Standing Committee, and the Government of Vietnam.”
The Company is working towards finalization of the SPA in due course and the Term Sheet provides that the arrangement between Magnolia and DeltaOE will terminate if the SPA has not been executed by October 31, 2019 (or such later date as agreed by the parties). Execution of the SPA (which will remain subject to the “Financial Close” condition precedent referred to above) will take place once the SPA terms are finalized and agreed and once DeltaOE obtains the necessary government and regulatory approvals for the integrated project, including the official notification of the project into Vietnam’s national power development plan (Power Development Plan 7 revised).
As stated in the Announcement, the integrated project is anticipated to commence operations in 2023 if all pending government approvals are obtained and all conditions precedent satisfied. Further announcements will be made once the SPA has been executed.