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Liquefied Natural Gas Limited Signs EPC MOU With SKEC Group

Liquefied Natural Gas Limited (ASX:LNG) continues to progress its Magnolia liquefied natural gas (MLNG) export project in Louisiana with the execution of a MoU with SK Engineering and Construction.

This relates to the preferred engagement of SKEC as the engineering, procurement and construction (NYSE:EPC) contractor for the 8 million tonne per annum project.

SKEC has already estimated capital costs for an initial two train project at US$1.57 billion.

Under the MOU the parties agree to negotiate in good faith a Technical Services Agreement to undertake the necessary activities to conclude a bankable Fixed Price EPC Contract.

The key scope under the agreement includes:

- Review all the Resource Reports submitted to the Federal Energy Regulatory Commission (FERC) and assist MLNG to complete the FERC filing process through to FERC Notice to Proceed with construction;
- Complete sufficient Front End Engineering Design (OTC:FEED) and open book cost estimating activities, in conjunction with MLNG, to enable the Fixed Price EPC Contract to be agreed and signed; and
- Negotiate all commercial terms, including compensation to MLNG by way of liquidated damages for late completion and LNG plant performance non‐compliance, satisfactory to MLNG's equity partner and debt providers.

"The company and SKEC Group have a long history of working together, including progressing to a binding EPC proposal and draft Fixed Price EPC Contract in relation to the company's Gladstone LNG Project in Queensland, Australia," LNG Limited chief technical officer Paul Bridgwood said.

He added that as a result, SKEC has a sound understanding of the company's project development philosophy and the benefits of its OSMR technology.

"SKEC Group has already commenced work on the Fixed Price EPC Contract activities and submitted a first draft of the Technical Services Agreement, based on a similar agreement negotiated and executed for the Gladstone LNG Project," Bridgwood noted.

LNG Limited managing director Maurice Brand added that MLNG remained on schedule and on budget.

"With the current team that has been assembled in our Houston office and soon to be announced new Chief Operating Officer and new Senior Vice President, Engineering and Construction, Magnolia LNG will continue to gather momentum during 2014," he said.

Mangolia LNG

SKEC's US$1.57 billion capital estimate is for the EPC contract portion of the MLNG Project for the initial phase of 2 LNG Trains - with total production capacity of 4Mtpa of LNG, gas treatment facilities, two 160,000 square metre storage tanks, jetty/ship loading facilities and related infrastructure for the full 8Mtpa LNG Project.

The South Korean engineering company has already satisfactorily completed a detailed review of the company's OSMR® process technology that will be employed in the MLNG Project and as a result, each LNG processing train will have a design capacity of a minimum of 2 million tonnes per annum and a SKEC guaranteed capacity of 1.7Mtpa.

MLNG is planned as a 8Mtpa liquefied natural gas export project comprising of four liquefaction trains located at the port of Lake Charles, Louisiana, that is fast-tracked for a robust Final Investment Decision in mid-2015.

This will use LNG Limited's OSMR® LNG process technology with the company adopting a tolling business model whereby Magnolia LNG will provide liquefaction, storage and ship loading facilities to LNG buyers who pay a monthly fixed capacity fee, plus all LNG plant operating and maintenance costs.

The LNG buyers are also responsible for the supply and transportation of gas to the project site.

MLNG is well positioned to provide access for the loading of LNG onto LNG ships for exports, LNG Barges for marine distribution to mini‐LNG refuelling stations as well as LNG Trucks for potential road distribution to LNG refuelling stations within Louisiana and other surrounding U.S. states.

In addition, the site is located within 3 miles of three major underutilised pipelines including the Kinder Morgan Louisiana Gas Pipeline that is located on site.

This enables the project to take advantage of 11 major gas transportation corridors that mitigates infrastructure risks and allows it to tap the country's massive shale gas production.

Stonepeak Partners is earning an estimated 50% stake in MLNG return for contributing the full US$660 million project equity requirement.

This represents 30% of the total capital costs with LNG Limited planning to finance the remaining 70% with project debt.

To that end, the company has appointed BNP Paribas Bank as its project finance advisor.

It will also work with Stonepeak and New York based EAS Advisors, which had been instrumental in LNG lining up funding and partners for the project, to secure the proposed project debt financing for the Stage 1 development.

A Tolling Term Sheet for up to 2Mtpa has been signed with Guvnor along with a Heads of Agreement with GasNatural that effectively underpins the base case for the project. In addition, a 2Mtpa Tolling Term Sheet has been signed with LNG Holdings.

Analysis

The execution of the MoU with SK Engineering to conclude an engineering, procurement and construction marks another step that LNG Limited is taking towards development of its Magnolia LNG project.

This follows on the execution of a legally binding pipeline capacity agreement with Kinder Morgan Louisiana Pipeline late last month.

That the project remains on schedule and on budget are more positives for the project.

MLNG is now progressing towards submitting an application to the US Federal Energy Regulatory Commission (FERC) for full filing status for MLNG in March/April 2014.

Approval by FERC will pave the way for construction to begin at MLNG and could allow LNG Limited to mirror Cheniere Energy's (NYSEMKT:LNG) growth.

Cheniere is now a US$10.67 billion valued company with shares priced at US$44.65.

At the time that it received FERC approval in April 2012 to build an export plant for liquefied natural gas at Sabine Pass in Louisiana, it was trading at around US$12 a share.

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