Exclusive: Equatorial Guinea in LNG sale talks as Shell deal winds down

LONDON (Reuters) - Equatorial Guinea is in talks to sell liquefied natural gas (LNG) supply from its Punta Europa project to independent and state-backed oil companies and traders from 2020 as it winds down an exclusive deal with Royal Dutch Shell.

Gabriel Obiang Lima, Minister for Mines and Hydrocarbons, told Reuters he is seeking to lift royalties from future LNG deals close to 50 percent, compared with 12.5 percent under existing arrangements with Shell.

Shell’s deal, inherited after it acquired BG Group in 2015, was amended in 2009 under government pressure to include a 12.5 percent share of profits, but it is still among the most lucrative contracts for any LNG exporter.

“We invited possible LNG buyers, so they are aware of the opportunities,” Lima said, adding that talks are progressing with China National Offshore Oil Corporation (CNOOC), Russia’s Lukoil, France’s Total, trader Vitol, Shell and a joint venture between Lukoil and NewAge.

Supply deals will be offered for 3-5 years from 2020, Lima said.

The country’s LNG plant, operated by Marathon Oil Corporation, is currently fed by the depleting Alba gas field, which faces a cliff-edge dip in output from 2019/2020, he said.

Future production will be underpinned by pooling supply from the country’s and wider region’s stranded gas fields, raising the prospect of eventually boosting LNG output and state energy revenue.

LEGACY DEAL

In signing up to buy all of Equatorial Guinea’s 3.4 million tonnes of annual LNG output for 17 years, BG Group - later acquired by Shell - sealed one of the industry’s most lucrative LNG deals.

It paid a fixed discount to U.S. Henry Hub gas prices - now one of the cheapest gas benchmarks in the world - as it initially planned to sell supply into that market.

As the shale gas revolution killed demand for LNG imports, BG Group benefited from paying U.S.-linked prices for the LNG as it diverted supply to Asia, where prices were up to five times higher.

The original contract made no provision for profit sharing on cargo diversions with the government, in part because the U.S. transformation from gas importer to producer took global markets by surprise.