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Pacts Inked for $826M Salalah LPG Extraction Project

Source: Oman Observer 7/11/2017, Location: Middle East

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Agreements were signed for the implementation of Oman’s first liquefied petroleum gas (LPG) extraction plant with a $826 million investment designed to further unlock the economic and commercial potential of the Sultanate’s hydrocarbon resources.

The strategically important project is being developed by Oman Gas Company SAOC (OGC), the midstream vertical of the government’s energy and strategic investment arm Oman Oil Company SAOC (OOC), at a site located within Salalah Free Zone. Revenues from the venture, centring on the export of much of the plant’s output of around 300,000 tonnes of LPG, is estimated at $200 million per annum.

Salim bin Nasser al Aufi, Under-Secretary of the Ministry of Oil and Gas, was joined at the event by Eng Isam bin Saud al Zadjali, CEO of Oman Oil Company SAOC, and Sultan bin Hamed al Burtmani, Acting Executive Managing Director of OGC. Also in attendance were high level executives from Salalah Free Zone, Port of Salalah and a number of local and international banks that are providing up to 80 per cent of the project cost in finance for the venture.

At the heart of the project is an extraction and fractionation plant designed to process up to 8.8 million standard cubic metres/day of natural gas. While the rich gas elements, comprising a mix of propane, butane and condensates, are stripped from natural gas to produce LPG, the ‘lean gas’ is pumped back into the grid. Also as part of the project, LPG and condensate storage facilities will be developed on a roughly 9-hectare site at the adjoining Port of Salalah. From this dedicated export jetty, LPG will be shipped to markets primarily in the Indian sub-continent — a task handed to OOC’s international trading arm Oman Trading International (OTI) — when the Salalah LPG project is operational by the year 2020.

In all, four key agreements were signed at the Crowne Plaza Muscat here yesterday. First was a Build, Own, Operate & Transfer (BOOT) agreement alongside a Natural Gas Supply Agreement (NGSA) signed by OOC/OGC with the Ministry of Oil & Gas (MOG). The agreement covers the extraction of LPG from natural gas for a 25-year period with a profit sharing mechanism of 80 per cent post the equity recovery phase.

OGC also signed a Sub-Usufruct Agreement with Salalah Free Zone (SFZ) for the 25-year lease of around 20 hectares of land for the construction of the extraction and fractionation plant in the free zone. Separately, a 30-year Lease Agreement was also signed with Salalah Port Services (SPS) covering the lease of around 8 hectares of land in Port of Salalah for the products storage tanks.

Rounding off the signings were pacts inked with a total of eight banks providing the debt component of the project finance. The line-up comprises: Bank Muscat, Bank Sohar, Standard Chartered Bank, Société Générale, Qatar National Bank (QNB), Ahli Bank Oman, Ahli United Bank (Bahrain), and APICORP.

Highlighting the importance of the project, OOC CEO Isam al Zadjali said: “Salalah LPG is a strategic investment for OOC as it supports the long term objectives of the Government of the Sultanate of Oman in terms of revenue generation, economic development and job creation through monetisation of the propane and butane elements of available rich gas. Salalah LPG will generate significant financial benefit for the government of Oman and OOC, and will further enhance the existing and future downstream industries in Dhofar Governorate.”

Sultan bin Hamed al Burtmani, OGC Acting EMD, added: “Salalah LPG has been able to successfully secure limited recourse financing amid challenging global financial and economic conditions. This reflects the trust that financing institutions have placed on the project and the financing structure. The robustness of Salalah LPG’s financing structure is demonstrated by the fact that the lending group comprises of local, regional as well as international lenders.”

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