Gorgon LNG term sheet being converted to gas SPA

Vol 10, PW 10 (07 Sep 06) Midstream & Downstream

International law firms have begun the laborious process of converting the detailed term sheets between Petronet-LNG and Gorgon LNG partners Chevron and Exxon into a formal gas Supply Purchase Agreement.

We might sign one SPA or we might sign two, we hear. Its not clear yet.

There is no need for a Heads of Agreement. Were so close well move directly to the contract.

Ten or eleven contracts need to be signed for a deal like this. When signed, New York law - considered the most mature jurisdiction for contracts of this kind - will govern the SPA for Gorgon LNG to Kochi; the pricing formula will be benchmarked against the Japanese Crude Cocktail (JCC), typical for contracts East of Suez.

Contracts West of Suez would be typically benchmarked against Brent. No surprise to hear that the highly sensitive one-page commercial pricing formula for FOB delivery of Gorgon LNG is missing from the paperwork circulating with international counsel in the US, India, Australia and elsewhere.

Only two people at Petronet-LNG have access to this piece of paper: managing director (Prosad Dasgupta) and the director finance: Amitav Sengupta. we hear.

Not even the oil ministry has a copy. Uncertainty over the exact cost of the Gorgon project tentatively pegged at $12bn - should be dispelled by the end of this month (September) when promoters Chevron, Exxon and Shell review an internal Detailed Feasibility Report.

By 31st December the consortium needs to sign up all its buyers and by end-March next year it wants to have awarded all EPC contracts for Gorgon project completion. Confidence that the SPA will be signed before 31st December stems from the tight deadline that both sides are up against.

Gorgon needs to tie up all its customers before it awards the EPC contracts, we hear. They (Gorgon) cant award (EPC) contracts unless they find customers for the entire quantity and Petronet-LNG cant sign a SPA unless it shows proof it has awarded the shipping and EPC contracts for Kochi.