London-listed Ophir Energy has suffered a major setback on its offshore investment plan in Equatorial Guinea after the country's Ministry of Mines and Hydriocarbons (MMH) declined the company's request to extend Block R licence that expired on December 31, 2018.
This is the location where Ophir is building Africa's first deepwater floating liquefied natural gas project that is expected to come online in 2022.
Earlier, Ophir had informed its shareholders the company was engaging the MMH “as well as potential investors in the Fortuna Development.”
“We expect to receive further communication from the MMH in January concerning either the lapse of the licence or the terms of any extension and will update shareholders as soon as the situation is clarified,” the company had said on December 31, coinciding with the permit's expiry period.
The failure to extend Ophir's permit, may not have come as a surprise for the company when one takes into consideration the many frustrating experiences the company has gone through in developing the Fortuna gas discovery in the southeast of Equatorial Guinea's offshore Bioko island where Ophir has an operated interest of 80 percent.
Confirming the government's decision last week, Ophir said the latest development would lead to “an additional non-cash impairment of the asset, expected to be around $300 million in the company fill year financial results.”
Ophir, which said it will now put more emphasis on implementation of the strategy it outlined outlined on September 13 especially concerning its Southeast Asia assets, has previously reported several low moments in its efforts to develop the Fortuna gas field targeting monetization of the more than 300MMboe resource and increase the company's production by over 16000boepd.
At some point, Ophir had expressed how frustrating it has been in trying to ensure it gets adequate financing for this offshore project to enable it reach a final investment decision initially slated for mid-2017.
“Admittedly, we have had our setbacks on this project, no more so than in the early part of 2016 when Schlumberger withdrew from a planned upstream farm-in,” Ophir said previously.
In a related lamentation over the challenges in entrenching its presence offshore Equatorial Guinea, Ophir said the first six months of 2018, the Fortuna development “suffered a setback with the dissolution of OneLNG and the subsequent effective withdrawal of Schlumberger from the Fortuna project.”
“We continue to work to realize value for shareholders whilst we are in possession of the licence (but) given the uncertainty around the value we can ultimately realize from Fortuna, we have impaired the asset to a carrying value of $300 million held on our balance sheet at the period-end,” Ophir said in September.
But away from these challenges, Ophir had in the last quarter of 2016 approved formation of a joint venture with OneLNG, which is a partnership with Golar LNG and Schlumberger. With this JV, Ophir was optimistic it had moved closer to reaching a final investment decision for the Fortuna LNG project that the company anticipates to invest $120 million of the $2 billion capital expenditure needed to bring it online.
Despite the bad news of refusal by Equatorial Guinea to extend Ophir's Block R permit, the company had considered the West African government a reliable partner in its drive to invest in the country's offshore space especially after the signing of the second production sharing contract (PSC) for the 3,537sq km Block EG-24 in the last quarter of 2017.
With a reputation of having recorded more than 48 oil and gas discoveries and a drilling success rate of 42 percent, it is easy to see why Ophir sought to be awarded Block EG-24 offshore Rio Muni to the west of the legacy producing fields of Ceiba and Okume. The play is one of 20 marketed by the government Equatorial Guinea during EG Ronda 2016 licensing round.
In fact, the government had declared Ophir Energy's decision to sign the PSC for Block EG-24 as “a vote of confidence in the oil and gas sector in Equatorial Guinea and a result of a well received global licensing round for the country that has a drilling success rate above worldwide average.”
Ophir subsequently farmed out a 40 percent interest to Kosmos Energy in return for shooting a block wide 3D seismic survey “for which Ophir is fully cost carried, and partially carried on the cost of a well if a decision to drill is made.” Ophir updates in mid-2018 said the 3D survey commenced in May of the same year.
It remains to be seen whether the latest development in Ophir's Equatorial Guinea investment would see the company move on and pursue other oil and gas investments under its business model that stresses “efficient identification of oil and gas resources and smartly monetizing them.”