Canacol Energy said that its Colombian unit CNE Oil & Gas, as operator of the VIM 5 exploration and production contract in Colombia, executed a new 15 year take or pay contract for the sale of 35 million standard cubic feet per day of gas to Altenesol LNG Colombia commencing in the fourth quarter of calendar 2016.
Under the terms of the new take or pay gas sales agreement, Altenesol will pay US$ 4.90/MMbtu, escalated at 2% per 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% in exchange for investing US$ 13 million in the project, the company informed in a statement.
Altenesol will use the gas to produce approximately 360,000 gallons of LNG per day 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 at a sales price of approximately US$ 11/MMbtu. Canacol, through its beneficial ownership of Altenesol, will also derive revenues from the sale of the LNG of approximately US$ 1.25/MMbtu. As such, total revenues from the gas sales contract and Canacol’s beneficial ownership in Altenesol are expected to be approximately US$ 6.25/MMbtu escalated at 2% per 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 revealed shortly, the company said. 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 by year end calendar 2017.
The corporation in 2014 executed three gas sales contracts for a combined 65 MMscfpd which is expected to take Canacol’s current daily gas production of approximately 20 MMcfpd to 83 MMcfpd in late calendar 2015 with pricing from US$ 5.40/MMbtu to US$8.00/MMbtu escalated at approximately 3% per year.