Page 4 - GLNG Week 37 2022

GLNG COMMENTARY GLNG

No quick start for Lakach

floating LNG project

COMMENTARY Mexico’s national oil company (NOC) Pemex yet to decide how they intended to split the cost
reported earlier this year that it had teamed up of development, drilling and infrastructure ini-
with a US-based partner, New Fortress Energy tiatives at the field.
(NFE), to develop Lakach, a deepwater natural
gas field located off the coast of Veracruz State, It is not clear whether the parties have made
and might be able to start production as early as any progress on this front since signing to the LoI
next year. in July. Pemex’s CEO Octavio Romero Oropeza
On balance, the announcement appeared to noted at the time that his company had spent
be good news for Pemex. It marked a return to about $1.4bn at Lakach before suspending work
work at the Lakach field, a project that has been and added that the NOC and NFE had agreed to
on hold for more than six years due to technical invest another $1.5bn in the project. However, he
and financial challenges. For another, it indicated did not explain how expenses would be shared.
that the NOC might have found a way to achieve
its aim of developing major hydrocarbon depos- The trouble with service contracts
its on its own, rather than bringing foreign part- In any event, Pemex has submitted a develop-
ners on board and making them shareholders. ment plan for Lakach to the National Hydrocar-
Moreover, it signalled that Mexico was on bons Commission (CNH), Mexico’s national oil
the way to becoming a producer and not just and gas regulator. That development plan calls
an importer of LNG. As part of the deal, NFE for NFE to work under a service contract, as was
agreed to deliver a 1.4mn tonne per year (tpy) the practice for Pemex’s foreign partners prior
floating LNG (FLNG) unit to Lakach. It noted to the passage of wide-ranging energy reforms
that Pemex intended to use the FLNG vessel to in 2013-2014.
liquefy most of the gas extracted from the field, Under a service contract, NFE would be paid
leaving the remaining volumes, along with any a fee instead of receiving a share of output, as
gas condensate production, available for utilisa- would be the case under a production-sharing
tion at its onshore facilities. arrangement. Meanwhile, Pemex would retain
NFE also said in July that the partners would full ownership of the site and absorb all finan-
be developing two more nearby gas fields, Kunah cial risks in the event that gas prices dropped
and Piklis, along with Lakach. It explained that below expected levels. It would also be able to
these two sites made Lakach a more attractive start work more quickly, as it would not have to
prospect, as they held around 2.3 trillion cubic carry out a competitive public tender a different
feet (65.13bn cubic metres) of gas in addition to kind of contract, such as a farm-out for an equity
Lakach’s 1 tcf (28.3 bcm) of gas in proven and stake in Lakach.
probable reserves. The NOC appears prepared to confront those
risks in exchange for the right to develop a major
Still under discussion asset on its own. But Reuters reported on Sep-
These are ambitious plans, but they are not set in tember 13, citing no less than eight sources close
stone yet. The deal announced at the beginning to the matter, that the commission had withheld
of July was not a final agreement but a letter of approval because it was not convinced that this
intent (LoI) signed within the framework of a development plan met the standard of being
long-term strategic partnership. both technically and economically viable. Two of
In other words, Pemex and NFE have yet to the sources said that CNH members had raised
hash out all the provisions and conditions of the questions on economic grounds, specifically
service contract under which the latter com- criticising estimated drilling costs and produc-
pany will be working at the deepwater gas field. tion forecasts as too high.
Indeed, Reuters reported on September 13 that These critiques are not exactly surprising,
NFE had said it was still “working on the terms” given that CNH members have said in the past
of the deal with Pemex. The news agency also that they favour a farm-out for Lakach because
said that the NOC and the US-based firm had they have doubts about Pemex’s ability to carry

P4 www. NEWSBASE .com Week 37 16•September•2022