Sources said the two parties have made a breakthrough on a proposal for THHE’s partly converted MT Laurita FPSO to go on a multi-year lease at the Layang field in Block SK 10, following negotiations that have been going on since late last year.
Subject to approval from state-owned Petronas, the FPSO, which is presently anchored at Dubai Drydocks, is scheduled to undergo final conversion before starting a seven-year term charter with options for extension.
Operational start-up at Layang has slipped from JX Nippon’s initial planned date in late 2015 to the first quarter of 2016 but THHE will still face a challenging task to deliver the vessel within a year from the expected contract award.
Sources point to the tight schedule as contributing to JX Nippon Steel’s decision to enter into direct negotiation with THHE instead of pursuing a tender as was initially planned.
Even so, the terms of the FPSO charter have taken months to iron out, not least due to concerns raised over the high projected capital expenditure involved in delivering the converted production floater, one informed source told Upstream.
THHE will need to spend more than $400 million to complete the conversion of MT Laurita for the proposed Layang contract, the source said.
The high capital expenditure means THHE would require assurance of either a contract extension or redeployment in order to justify its investment.
JX Nippon had set a designed production life of 20 years for the Layang FPSO, which will come equipped with compression, dehydration and separation modules to process crude, gas, condensate and water from the field.
While the vessel is presently sitting in Dubai, THHE is understood to have sounded out yards in Malaysia and Singapore for its potential conversion.
MT Laurita was designed to operate in DP mode, but this will not be required for the intended Layang charter.
The deck space provided for an internal turret on board the vessel will have to make way for additional storage space while an external turret will need to be procured to meet operational requirements at Layang, one source said.
THHE is concurrently in talks with third-party contractors for the FPSO operations.
The Layang FPSO will be tied to a wellhead platform tendered out separately to Malaysian fabrication yards.
Newcomer Oceanmight — a 43%-owned subsidiary of KKB Engineering — emerged as the frontrunner in the commercial round for the fabrication of the wellhead platform.
The winner will be decided after balancing the technical and commercial scores betweenOceanmight and five other contenders.
Delivery of the wellhead platform is scheduled for the second quarter of 2015.
The Layang field development is projected to produce 75 million cubic feet per day of gas and 8000 barrels per day of liquids.
Gas will be exported via the Helang integrated platform to the Bintulu liquefied natural gas plant.
Crude and condensate will be stored in the FPSO and offloaded using shuttle tankers.