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Canacol secures 15-year gas sales contract in Colombia

06th February 2015

Canacol Energy has announced that its Colombian subsidiary CNE Oil & Gas S.A.S., in its capacity as operator of the VIM 5 Exploration and Production (E&P) contract in Colombia, executed a new 15-year take or pay contract for the sale of 35 million standard cubic feet per day (MMscfpd) of gas to Altenesol LNG Colombia S.A.S. commencing in the fourth quarter of calendar 2016

Canacol Energy has announced that its Colombian subsidiary CNE Oil & Gas S.A.S., in its capacity as operator of the VIM 5 Exploration and Production (E&P) contract in Colombia, executed a new 15-year take or pay contract for the sale of 35 million standard cubic feet per day (MMscfpd) of gas to Altenesol LNG Colombia S.A.S. commencing in the fourth quarter of calendar 2016
This new contract is expected to take Canacol’s gross gas production to 118 MMscfpd (20,700 boepd) by year-end calendar 2017

“This new sales contract demonstrates the corporation’s ability to quickly commercialise its gas finds in Colombia, in this case the significant gas discovery we recently made at Clarinete on the VIM 5 contract,” said Charle Gamba, President and CEO of the Canacol.

“Our beneficial ownership of Altenesol exposes Canacol to revenues from the full value chain of the LNG project, from gas sales through to the sale of the LNG product itself, of approximately USD 6.25 / MMbtu (USD 35.63 / boe) escalated at 2 per cent a year across the 15-year term of the contract.  This translates into approximately USD 1.2bn of undiscounted gross revenues from the sales contract and the beneficial ownership of the Altenesol.   Additionally, this new contract and our beneficial ownership in Altenesol will provide us with a direct route to the growing South America, Central America and the Caribbean gas market for Canacol’s gas as we continue to make new discoveries.”

Pursuant to an existing agreement, as previously announced, an industry partner has a right to a 25 per cent interest in the VIM 5 E&P contract, subject to regulatory approval and meeting certain financial commitments.  Under the terms of such agreement, however, the corporation retains operatorship and a right to commercialise 100 per cent of the gas produced from contract on behalf of the partners.

Under the terms of the new take or pay gas sales agreement, Altenesol will pay USD 4.90/MMbtu (USD 27.93/barrel of oil equivalent – boe), escalated at 2 per cent a year across the term of the contract.  In addition, Canacol and Altenesol executed an agreement pursuant to which Canacol has the option to participate in the revenues generated by the sale of the LNG through an equity ownership position in Altenesol of approximately 26 per cent in exchange for investing USD 13m in the project.

Altenesol will use the gas to produce approximately 360,000 gallons of LNG per day (GPD) at a dedicated liquefaction facility that will be composed of two LNG trains (180,000 GPD each) to be located close to Canacol’s operated Jobo gas processing facility.

The second LNG train shall start operation within 12 to 16 months after the first.

Altenesol has recently executed a 15-year take or pay contract to sell the LNG to be produced by the facility to Adventus Fuel Inc (AFC), an international distributor for export to markets in South America, Central America and the Caribbean at a sales price of approximately USD 11 / MMbtu (USD 62.70 / boe) FOB Plant.

Canacol, through its beneficial ownership of Altenesol, will also derive revenues from the sale of the LNG of approximately USD 1.25 / MMbtu (USD 7.12 / boe).  As such, total revenues from the gas sales contract and Canacol’s beneficial ownership in Altenesol are expected to be approximately USD 6.25 / MMbtu (USD 35.63 / boe) escalated at 2 per cent a year across the 15-year tenure of the take or pay contract.

The gas for the contract will come from the recently discovered Clarinete gas field located on the VIM 5 E&P Contract.  The corporation recently flow tested the first of two reservoirs within the discovery at approximately 21 MMscfpd, and is currently flow testing the second reservoir interval, with results to be announced shortly.  The pre-drill best estimate for recoverable prospective resource at Clarinete is approximately 540 billion cubic feet of gas.

This new contract is expected to take Canacol’s gross gas production to 118 MMscfpd (20,700 boepd) by year-end calendar 2017.  As previously announced, the corporation in 2014 executed three gas sales contracts for a combined 65 MMscfpd (11,052 boepd) which is expected to take Canacol’s current daily gas production of approximately 20 MMcfpd (3,509 boepd) to 83 MMcfpd (14,561 boepd) in late calendar 2015 with pricing from USD 5.40/MMbtu (USD 30.78/barrel of oil equivalent – “boe”) to USD 8.00/MMbtu (US$ 45.60/boe) escalated at approximately 3 per cent a year.

“We look forward to a mutually beneficial relationship with Canacol and a shared vision of the Global LNG market,” commented Nelson De La Nuez, CEO of Altenesol/IAHL. “We have a solid foundation in place and a blueprint to accelerate expansion. Canacol’s option to participate in the equity of the project opens greater expectations to Altenesol’s vision as well as having a solid company supporting the proliferation of LNG through South America, Central America and the Caribbean. We thank the many team members that have made this possible and our shareholders for their patient support as we build a solid corporation for the future.  Many company developments are nearing completion and will add to our value.”

Related topics: 

LNG

Latin America

Oil and gas industry news from Latin America

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